Yahoo shares soar as Yang agrees to quit CEO post

SAN FRANCISCO (Reuters) - Shares of Yahoo Inc soared 10 percent on Tuesday on hopes that the departure of Jerry Yang, its embattled chief executive, would clear the way for a deal with Microsoft Corp.

Yahoo announced late on Monday that Yang, whose leadership had come under growing criticism from shareholders after he failed to agree to a deal with Microsoft, would step down from his role as soon as the board finds a replacement.

Yahoo is evaluating both internal and external candidates for the top post, and has hired executive search firm Heidrick & Struggles to run the search process.

Analysts said Yang's decision to step down is a sign that the board was frustrated with his efforts to turn around the company, which he co-founded. Yang took on the CEO role in June 2007.

"Jerry's resignation as CEO reflects failed promises he made while fighting off Microsoft's offers, and the board's displeasure with his go-it-alone strategy," wrote Jefferies & Co analyst Youssef Squali in a research note.

Microsoft on January 31 offered $31 a share, or $44.6 billion, to buy all of Yahoo, an offer the Internet company rejected. Microsoft later sweetened its bid but withdrew it in May after being turned down by Yahoo again.

Analysts said Yahoo's board could now grab the opportunity to approach Microsoft under a new CEO.

"The departure of Yang could signal a new position by the board to reconsider the terms of a merger with Microsoft," said Needham & Co analyst Mark May in a research note.

He said the move was "appropriate" after Yahoo failed to strike a deal with Microsoft, teaming up with rival Google Inc to do a search advertising partnership that Google eventually abandoned.

Yahoo's shares rose 10.3 percent, or $1.10, to $11.73 in midday trading on the Nasdaq.

The shares have fallen roughly 65 percent this year while Yahoo has struggled to find a way to make money as advertisers have scaled back on spending amid a wider economic downturn.

Trading volumes were running higher than usual in the options market on Tuesday, with investors actively buying Yahoo call options on expectations that the stock will continue to move higher during the rest of the year, said Frederic Ruffy, options strategist at New York-based Web information site WhatsTrading.com.

"Yahoo shares are up as investors applauded news that its CEO Jerry Yang is stepping down," Ruffy said.

(Reporting by Anupreeta Das and Doris Frankel; Editing by Brian Moss)