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Microsoft, Yahoo Discuss Scaled-Down Merger of Online Advertising Businesses

5:45 am on May 20, 2008 | Category: Business, Corporate, Web Services

Embattled internet giant, Yahoo Inc., has returned to the bargaining table with prospective suitor, Microsoft Corp., to discuss a scaled-down merger deal, reportedly limited to the two firms’ online advertising businesses.

“Microsoft is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo,” Microsoft said in a statement just two weeks after claiming that it had “moved on” following the collapse of a $47.5 billion proposed takeover deal.

The scaled-down proposal likely involves a partnership or joint venture in the search-based online advertising industry, so as to create a viable alternative to industry leader, Google, the New York Times reports.

Yahoo’s willingness to negotiate may stem from its desire to avoid a proxy battle with activist shareholder, Carl Icahn, who controls about 4% of the company, and is advocating an outright sale to Microsoft.

For its part, Microsoft says that it is “not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments.”

If Yahoo cannot reach some sort of deal with Microsoft in the next few weeks, it risks a heated and potentially damaging showdown with its own investors at its annual general meeting this July.

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