By Michael LiedtkeSAN FRANCISCO (AP) - Yahoo! ( YHOO co-founder Jerry Yang is stepping down as CEO, ending a rocky reign marked by his refusal to sell the Internet company to Microsoft ( MSFT - Get Report) for $47.5 billion -- more than triple Yahoo's current market value. The change in command announced Monday won't be completed until Yahoo finds his replacement. The Sunnyvale, Calif.-based company said it is interviewing candidates inside and outside Yahoo! in a search led by its chairman, Roy Bostock, and the executive recruitment firm Heidrick & Struggles. "Jerry and the board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level," Bostock said. Yang, who started working on Yahoo! with Stanford University classmate David Filo in 1994, will revert to "Chief Yahoo," a titular role he filled before replacing former movie studio boss Terry Semel as CEO in June 2007. He will also remain on Yahoo!'s board. "I will continue to focus on global strategy and to do everything I can to help Yahoo! realize its full potential and enhance its leading culture of technology and product excellence and innovation," Yang said in a statement. Sue Decker, Yahoo!'s president, is expected to be among the candidates to succeed Yang, although she has been an integral part of the management team that has exasperated the company's shareholders. Dan Rosensweig, who resigned as Yahoo!'s chief operating officer, also could be lured back as CEO, or the board could turn to one of its own directors, such as former Viacom ( VIA CEO Frank Biondi or former Nextel CEO John Chapple.
Although Yang had publicly expressed his desire to remain at the helm, Yahoo!'s board faced intensifying pressure to cast him aside as the company's shares plunged to their lowest levels since early 2003. The stock fell 19 cents Monday to close at $10.63 -- a fraction of Microsoft's last bid of $33 a share in early May. Microsoft CEO Steve Ballmer huffily withdrew the offer after Yang sought $37 a share. The negotiating breakdown triggered a shareholder revolt led by billionaire investor Carl Icahn, who called for Yang's ouster in July. Icahn reached a truce that put him and two allies on Yahoo!'s 11-member board, but he still has been lobbying for Yahoo! to pursue a deal with Microsoft that would either involve selling the company in its entirety or just its search engine, which ranks a distant second to Google ( GOOG - Get Report). An Icahn spokeswoman said the financier had no comment Monday. Monday's shake-up comes as no surprise, given the challenges facing Yahoo!. "The shareholders were ready to pick up pitchforks and torches," said technology analyst Rob Enderle. "If Jerry wasn't a founder, he already would have been gone" months ago. Investors appeared to be pleased with the decision to replace Yang, as Yahoo! shares climbed more than 4% in Monday's extended trading. Yang, 40, had been pursuing a strategy that he thought would prove Yahoo! was worth more than Microsoft was willing to pay, but the rapidly deteriorating economy made a comeback seem increasingly unlikely. As it is, Yahoo!'s earnings have been eroding for three years, disillusioning investors and spurring a management exodus that indicated even Yang's own troops were losing faith in him.
After squandering the opportunity to sell to Microsoft, Yang tried to boost Yahoo!'s profit by forging an advertising partnership with Google. But that backup plan fell through two weeks ago when Google walked away from the deal to avoid a court battle with the U.S. Justice Department, which had concluded the partnership would have throttled competition in the online advertising market. On the day the Google partnership collapsed, Yang publicly said he thought Microsoft should hook up with Yahoo!. But Ballmer threw cold water on the idea the next day by declaring he doubted a deal could be worked out. Given the acrimony surrounding the breakdown of the earlier talks between Ballmer and Yang, some analysts have speculated Microsoft will be more willing to renew negotiations if Yahoo! had different leadership. Microsoft declined to comment late Monday. Yang also had been exploring a possible acquisition of another fading Internet star, AOL, but most analysts panned the idea as a desperation move that threatened to hurt Yahoo! more than it would help. As Yahoo! shares sank, a major acquisition became a moot point anyway because the depressed stock price made it more difficult to finance a deal.