Saturday May 3, 02:29 AM
Microsoft and Yahoo in takeover talks: source
By Glenn Chapman
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SAN FRANCISCO (AFP) - Microsoft (NASDAQ: MSFT - news) and Yahoo (NASDAQ: YHOO - news) began takeover talks Friday with the US software giant open to raising its 44.6-billion-dollar bid for the struggling Internet pioneer, a source close to the situation told AFP.
Yahoo and its unsolicited suitor are privately discussing the buyout bid after months of negotiating indirectly with public comments, emails and online postings, the source said.
"They are talking -- there are no guarantees," the source told AFP.
"Microsoft signaled it might raise the price and the question is how far. It could still fall apart."
Microsoft has indicated it might raise its ante from 31 to 33 dollars per share and the Yahoo board has signaled it might accept an offer of 37 dollars per share, according to Canaccord Adams analyst Colin Gillis.
"They are close enough now that to sit down and talk about it makes sense," Gillis said of Microsoft and Yahoo.
The negotiations appeared to break tension that has built since Yahoo rejected the offer Microsoft put on the table on February 1 and ignored an April 26 deadline the software maker gave the California firm to accept.
"It's what they should have done from day one," Silicon Valley analyst Rob Enderle told AFP.
"This raises the possibility that things will end amicably, even if Microsoft ends up walking away."
Microsoft is eager to merge online resources with Yahoo to take on Google (NASDAQ: GOOG - news) , which dominates the lucrative Internet search advertising market that is expected to grow to 80 billion dollars annually worldwide in the next two years.
Yahoo's stock price leapt nearly seven percent to 28.67 in late trading as investors bet that Microsoft will raise its offer instead of "going hostile" and trying to oust Yahoo's deal-blocking board of directors.
Microsoft chief executive Steve Ballmer told employees Thursday he would not pay "a dime above" what he thinks Yahoo is worth and they would know the next move in the takeover quest "in very short order."
"I know exactly what I think Yahoo is worth and I won't go a dime above," Ballmer said during an in-house exchange posted on the Internet, without specifying his self-imposed price cap.
Microsoft's chief financial officer, on the other hand, told analysts a week earlier that he was opposed to paying more for Yahoo.
"With the right circumstances it'll happen," Ballmer is quoted as saying in a Wall Street Journal interview published Friday. "Without the right circumstances it won't happen."
The two companies remained far enough apart on price to make analysts wary that a takeover deal is imminent, but negotiations raise the potential for them to make an alliance of another sort.
Microsoft and Yahoo might consider making an online advertising deal similar to the one Yahoo recently tested with Google.
Yahoo had Google handle targeting online ads on some of its pages in a trial run that confirmed Google does a better job of generating cash from "click-through" advertising targeted at Yahoo users.
An advertising deal with Google is something Yahoo "has in its back pocket" in case things turn nasty and Microsoft tries a hostile takeover, according to Gillis.
"Once you sit down you see there are more than two paths," Enderle said of the promise of talks between Yahoo and Microsoft. "They might part ways on a takeover but it opens doors to other things."
Even if Microsoft seals a takeover deal with Yahoo this weekend, it could take a year or more for it to be consummated given regulatory hurdles in Asia, Europe and the United States, according to Gillis.
"Even if we get a 35-dollar-per-share deal by Monday, this doesn't mean it's over," he said. "It is the beginning of the next stage. We certainly hope it gets done for the Yahoo shareholders' sake."
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