Cornered Yahoo CEO Jerry Yang looks to Microsoft for succour

Life seems to have come full circle for Yahoo CEO Jerry Yang. After rejecting Microsoft's advances earlier this year amidst shareholder concerns, and forging an alliance with Microsoft's arch rival Google which, incidentally, faltered at the altar after the US Justice Department raised objections, Yang is considering returning to the bargaining table with Microsoft. (See: Google-Yahoo adventure ends after warning by US dept of justice)

"To this day, I believe the best thing for Microsoft to do is to buy Yahoo," Yang said yesterday at the Web 2.0 summit in San Francisco. Yang said he and the rest of Yahoo's board "remain open to everything" after Google abandoned the advertising-search deal. In fact, he said that he was never against the buyout, only the price.

"I don't think that is a bad idea at all... at the right price, whatever the price is, we are willing to sell the company. We were ready to negotiate, we wanted to negotiate a deal, and we felt that we weren't that far apart. But at the end of the day, they withdrew and they since have been very clear about not wanting to buy the company,'' he offered.

Yahoo, which in June entered into the search deal as a way to avert a merger with Microsoft, expressed disappointment in the decision. "Yahoo continues to believe in the benefits of the agreement and is disappointed that Google elected to withdraw from the agreement rather than defend it in court," the company said in a statement.

Now, it is exploring other options to salvage itself. Microsoft seems to be an obvious choice. In fact, Yahoo's stock was climbing almost 6 per cent to $14.15 in recent trading -- its highest level in a month - on rumors that Microsoft would swoop in and make another bid.

If it does so, Microsoft CEO Steve Ballmer will clearly be on stronger ground than when Yang rejected his $33 a share offer as undervalued. Now it seems highly unlikely that another proposal would come anywhere close to the original bid.

Now, the winds of discontent against Yang are brewing again. Several major shareholders are openly clamouring for a change in management, and not without reason. Yahoo's sales growth, excluding revenue shared with partners, slowed to 3 per cent last quarter, down from 14 per cent a year earlier. Profit has dropped in 10 of the past 11 quarters.

The worsening economy is causing advertisers to restrain their spending, further complicating Yang's turnaround plan. Last month, the company announced at least 1,500 job cuts and lowered its forecast for 2008 gross sales to a range of $7.18 billion to $7.38 billion, citing deteriorating conditions in the online ad market. (See: Yahoo chopping more than 1,000 jobs: report)

Billionaire investor Carl Icahn threatened a proxy fight, and investors withheld about a third of their votes for Yang's re-election to the board in August. Now, that mild disturbance is looking to escalate into a major storm. Some speculate that Yang's departure from the company he co-founded is welcome, if not imminent. (See: Yahoo board wins vote of confidence)