Microsoft and Yahoo Hostile Proxy Fight?

Posted on | May 22, 2008 | Comments Off

After the failure of software manufacturer Microsoft to directly acquire popular search engine and portal Yahoo, a billionaire investor has initiated a hostile proxy fight aimed at replacing the Yahoo board of directors. Yahoo responded by delaying its yearly board meeting and releasing a lengthy letter criticizing the investor’s move to compel a merger between the two companies.

Investor Carl Icahn remains dissatisfied that the company did not merge with Microsoft, according to financial news website bloomberg.com. He has proposed a new board of ten directors to put in place of the current board and facilitate a merger with Microsoft. A separate report on the same site quoted Icahn as saying that it would be “crazy” for Microsoft not to take advantage of the hostile proxy fight to merge with Yahoo. He also claimed that the two companies must combine so that they can “fight” top search engine Google.

A press release issued by Yahoo on May 15th claimed that Carl Icahn’s move to initiate a hostile proxy fight represented a “significant misunderstanding of the facts” regarding the Microsoft acquisition attempt. It stated that the “best interests” of shareholders do not coincide with appointing a new board of directors who will attempt to revive acquisition by Microsoft, pointing out that the Microsoft offer has been withdrawn. It went on to explain why the offer was not favorable, and praised the present board of directors.

If the two search engines were to combine as one as a result of the hostile proxy fight, it would put the vast majority of WWW searches under the control of two companies, especially as they or Google supply results for most of the smaller search engines (Netscape, Hotbot, Altavista). The only other remaining competitor of much significance would be Ask.com. Both Microsoft and Yahoo operate major free email and instant messenger services, but Yahoo.com is also well-known for its popular community-based features like Yahoo Groups, Answers, and Flickr photo sharing.

It remains to be seen whether Yahoo will remain a separate company or be forced to merge with Microsoft through the hostile proxy fight. It is likely that Google will continue efforts aimed at preventing a merger, so as to prevent Microsoft from attaining a more dominant role on the internet. This may include further cooperation with Yahoo and additional statements questioning the excess competitive advantage which might be gained in such a merger.

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