Report: Microsoft seeks help for another Yahoo bid

SAN FRANCISCO — Unable to strike a deal on its own, Microsoft Corp. reportedly is hoping to snap up Yahoo's online search operations with the help of News Corp. and Time Warner Inc.

The latest twist in Microsoft's convoluted courtship caused Yahoo's shares to rise more than 3 percent in Wednesday's sinking stock market, even though the chances of a deal getting done still seemed remote.

If nothing else, the enthusiastic reaction to the unconfirmed report in The Wall Street Journal served as another reminder that investors want Yahoo to pursue a different path than the one mapped out by chief executive Jerry Yang.

And that could be bad news for Yang, who started Yahoo as an Internet directory 14 years ago. Unless he can sway shareholder sentiment before Yahoo's annual meeting Aug. 1, Yang could lose his job in a boardroom coup being attempted by investor Carl Icahn.

Recognizing Yahoo's vulnerability, Microsoft is trying to recruit News Corp., Time Warner's AOL or other media partners to put together a joint bid that would slice Yahoo into pieces, according to the Journal. The story cited undisclosed people familiar with the discussions.

Microsoft declined comment Wednesday. A Yahoo spokeswoman didn't immediately return a call seeking comment.

Under the reported breakup plan, Microsoft would emerge with Yahoo's online search operations — the main object of the software maker's desire since it began stalking Yahoo as long as ago as 2006.

After the two sides couldn't agree on a price, Microsoft withdrew a $47.5 billion bid to buy Yahoo in its entirety in early May.

Just two weeks later, Microsoft offered to pay $1 billion for Yahoo's search engine and invest another $8 billion for a 16 percent stake in Yahoo's remaining business.

Yahoo rejected that offer, too, and instead forged an advertising partnership with Google Inc., whose rapid growth prompted Microsoft's bid for Yahoo in the first place.

Now, Microsoft is trying to figure out a way to carve up Yahoo's business and hand off the non-search pieces to News Corp., AOL or other media partners, the Journal said.

Neither News Corp. nor AOL are new players in this soap opera.

Yahoo explored possible deals with AOL and with News Corp.'s popular online hangout, MySpace.com, while trying to fend off Microsoft's advances. And Microsoft previously has talked to News Corp. about making a joint bid for Yahoo.

Microsoft CEO Steve Ballmer had hoped to pitch its latest breakup proposal to Yahoo in a meeting on Monday of this week, but then canceled for unexplained reasons, a person familiar with the situation told The Associated Press.

Yahoo hasn't heard another formal proposal since June 8, said this person, who spoke on condition of anonymity because the on-again, off-again negotiations are considered confidential.

Microsoft's talks with possible partners are still in a preliminary stage and unlikely to culminate in a deal, according to people who spoke to the Journal.

But the mere prospect of Microsoft returning with another offer was enough to lift Yahoo shares 68 cents, or 3.4 percent, to close at $20.88. Microsoft shares fell 99 cents to finish at $25.88.

Yahoo's stock price has sunk by 27 percent since Ballmer withdrew an oral offer of $33 per share for the entire company in early May. Ballmer walked away after Yang sought $37 per share — a price that Yahoo's stock hasn't reached in nearly 2 years.

Stanford Group analyst Clayton Moran estimated Yahoo's breakup value at $20 to $24 per share, well below the $33 that Microsoft offered in early May.

With its shareholders fuming, Yahoo has unsuccessfully tried to persuade Microsoft to revive its bid for the entire company at $33 a share.

The impasse has deepened the animosity between the two companies, with Yahoo denigrating its suitor as "unresponsive and inconsistent" and Microsoft accusing Yahoo of engaging in "revisionist history."

By floating the idea of a Yahoo breakup, Microsoft may be trying to provide Icahn with ammunition for his attempt to overthrow Yahoo's nine-member board. Icahn didn't return a call Wednesday, but he has publicly stated he is opposed to doing a Microsoft deal unless it involves selling Yahoo as a whole.