Microsoft says willing to restart Yahoo talks

By Dane Hamilton

NEW YORK (Reuters) - Microsoft Corp on Monday said it would be willing to reopen talks to buy all or part of Yahoo Inc -- but only if a new Yahoo board is elected, a major boost for investor Carl Icahn's board slate.

Microsoft, which broke off talks in early May to buy the Internet company for $47.5 billion, said it would resume discussions immediately if a new board were elected at Yahoo's August 1 stockholder meeting.

The Microsoft statement came after Icahn, the billionaire financier who holds over 4 percent of Yahoo, issued his own statement that he had "spoken frequently" to Microsoft CEO Steve Ballmer over the last week. Previously, the two had not spoken.

Ballmer told Icahn that a big impediment to any Yahoo deal was his concern that the current board could "mismanage" the company while the deal awaits regulatory approval, a process that could take nine months or more, according to Icahn.

In an interview, Icahn argued that his proposed dissident board slate would make Microsoft feel more secure in risking a large sum of capital to complete the deal during the regulatory approval process.

"You don't have to be Sherlock Holmes to realize there is no great comfort zone between the current Yahoo board and Microsoft," said Icahn. "During this waiting period for regulatory approval, any acquirer -- not just Microsoft -- would want a steward they would feel comfortable with."

In an open letter disclosed on Monday, Icahn said the Yahoo board was the major impediment to any Microsoft deal.

In response, Yahoo issued a statement saying it continues to be willing to reopen talks with Microsoft, but "we feel strongly" that any deal negotiated between Icahn and Microsoft "would not lead to an outcome that would be in the best interests of Yahoo stockholders."

Icahn also said he is actively interviewing replacements for Yahoo CEO Jerry Yang and its management team. "I am moving towards getting a potential new management team for Yahoo including a new CEO," he said in a phone interview.

The long-awaited signals that the Microsoft-Yahoo talks could be revived sent Yahoo stock up more than 10 percent in early trade on Monday.

Sanford C. Bernstein senior Internet analyst Jeffrey Lindsay said that if Microsoft is serious about resuming talks, "there is rationale for voting for the Icahn slate and essentially ousting the current Yahoo board and probably the management too."

"At the end of the day, you would have to expect that the big institutional shareholders would go for a deal with Microsoft," said Lindsay.

Yahoo stock at midday was trading up $2.55, or 11.9 percent, to $23.90 on Nasdaq. Microsoft shares were up 4 cents to $26.02.

Talks between Yahoo and Microsoft broke down in early May. Microsoft originally offered $31 per share and raised it to $33, but Yahoo demanded $37 per share.

After talks collapsed, Icahn amassed a stake in Yahoo and launched a proxy war to replace the Yahoo board and management, claiming they "botched" the Microsoft talks.