Microsoft Is Icahn’s Ally in Pursuit of Yahoo

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By MIGUEL HELFT

Published: July 8, 2008

SAN FRANCISCO — Carl C. Icahn, the activist investor, has a powerful new ally in his campaign to take control of Yahoo: Microsoft.

Carl C. Icahn is waging a proxy fight against Yahoo’s board.

In yet another twist in its five-month-old pursuit of Yahoo, Microsoft said Monday that it would be interested in negotiating a purchase of Yahoo’s search business or of the entire company, as long as Yahoo replaces its board.

Mr. Icahn is mounting a proxy fight against Yahoo’s board, one built on the gamble that he can bring Microsoft back to the negotiating table.

But without a commitment from Microsoft to complete a deal, let alone any discussion of price, it is unclear whether Microsoft’s announcement will be sufficient to persuade Yahoo shareholders to back Mr. Icahn at the company’s annual meeting on Aug. 1.

Microsoft’s renewed interest in possibly buying all of Yahoo represents another acknowledgment that it badly needs Yahoo to compete with Google in Web advertising. But analysts said that for Microsoft, which this year had considered waging a proxy fight for control of Yahoo, backing Mr. Icahn also represents a shrewd strategy with little downside risk.

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