Yahoo Defends Google Partnership Amid Icahn Fight

By Crayton Harrison

June 30 (Bloomberg) -- Yahoo! Inc., battling billionaire investor Carl Icahn for control of its board, told shareholders that a partnership with Google Inc. was a better choice than a deal with Microsoft Corp.

Microsoft's proposal to buy Sunnyvale, California-based Yahoo's online search assets would have left the company unable to take advantage of growth in the Internet advertising market, Yahoo said today in an investor presentation.

Yahoo Chief Executive Officer Jerry Yang is seeking to reverse a decline in the stock since the company, owner of the No. 2 Internet search engine, ended talks with Microsoft. Icahn has criticized Yang for failing to close a deal with the world's biggest software maker, which withdrew an offer to buy all of Yahoo on May 3.

Shareholders will choose between Yahoo's nine directors and a slate put up by Icahn at an Aug. 1 meeting, and both sides are laying out their cases.

Microsoft was ``unresponsive and inconsistent'' in discussions on a takeover or another transaction, Yahoo said in the slides of its presentation, distributed in a regulatory filing. A separate offer to buy the Web search business would have hamstrung Yahoo's ability to compete, while the agreement with Google lets Yahoo keep working on search and still benefit from having Google sell advertising for some queries, Yahoo said.

Stock Reaction

``The market is more on Carl Icahn's side'' even though Yahoo makes compelling arguments, said Sachin Shah, an analyst at ICAP Securities in New York. He recommends buying Yahoo shares. ``The market is saying that Carl Icahn or new potential management or a board will get the ball rolling in a positive and strategic direction.''

Critics including U.S. Representative Joe Barton say the agreement with Google may hurt competition and consumer privacy. Yahoo may cede more market share to Google, said advertising buyers such as GroupM Interaction Worldwide's Rob Norman.

Yahoo fell 67 cents to $20.66 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have dropped 21 percent since June 11, the day before the company announced its agreement with Mountain View, California-based Google.

Microsoft, based in Redmond, Washington, fell 12 cents to $27.51.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net.
Last Updated: June 30, 2008 16:09 EDT