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Microsoft May Seek New Yahoo Combination

Microsoft (MSFT) said tonight it is continuing to explore alternatives to a full acquisition of Yahoo (YHOO).

Microsoft (MSFT) said tonight it is continuing to explore alternatives to a full acquisition of Yahoo (YHOO). The company provided few details on the possible form and focus of any deal, but emphasized that Microsoft is not making a new bid to acquire all of Yahoo. Speculation about a renewed Microsoft bid has increased since investor Carl Icahn announced last week that he had amassed a large stake in Yahoo and would seek to oust its entire board of directors in an upcoming vote. Here's the full text of Microsoft's statement:

In light of developments since the withdrawal of the Microsoft proposal to acquire Yahoo! Inc., Microsoft announced that it is continuing to explore and pursue its alternatives to improve and expand its online services and advertising business. 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 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 and discussions that may take place with Yahoo! or discussions with shareholders of Yahoo! or Microsoft or with other third parties.

Kara Swisher of Boom Town reported that "sources at both companies said it involved Microsoft buying Yahoo's search business and the ad business related to text-based ads." Such a structure would allow Microsoft to increase its share of the Internet search business, while allowing Yahoo to retain its large display advertising business.

Yahoo has now issued a response, which appears to leave the door open:

Yahoo has confirmed with Microsoft that it is not interested in pursuing an acquisition of all of Yahoo at this time. Yahoo and its Board of Directors continue to consider a number of value maximizing strategic alternatives for Yahoo, and we remain open to pursuing any transaction which is in the best interest of our stockholders. Yahoo!'s Board of Directors will evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value.

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