SAN FRANCISCO - Yahoo Inc.'s leaders defended online search leader Google Inc. as a more desirable partner than Microsoft Corp. in a Wednesday letter that affirmed the Internet pioneer's commitment to a strategy that has alienated shareholders.
Yahoo embraced its planned advertising partnership with Google amid reports that it had revived talks about a possible deal with Microsoft. The report, based on information from unnamed people, surfaced despite Yahoo's repeated rejection of the software maker since their tense mating dance began nearly five months ago.
Although Yahoo's letter didn't completely rule out a Microsoft deal, it stressed that working with Google remains the best option on the table.
The letter is part of Yahoo's campaign to fend off an attempt to overthrow its board at its Aug. 1 annual meeting. The revolt was triggered by Yahoo's rejection of Microsoft's takeover offer of US$47.5 billion, or $33 per share.
The Redmond, Wash.-based software maker withdrew the bid after co-founder and Chief Executive Jerry Yang pushed for $37 a share - a price Yahoo's stock hasn't reached since January 2006.
Upset by the board's handling of the Microsoft negotiations, activist investor Carl Icahn has nominated nine candidates to replace Yahoo's current directors, including Yang. If Icahn prevails, he also plans to fire Yang as CEO.
Yahoo is urging shareholders to reject Icahn's slate and give Yang another chance to prove the company is worth more than $47.5 billion.
Icahn didn't return a call seeking comment Wednesday.
Under an agreement announced this month, Yahoo will use Google's superior technology to show ads alongside its search results in the United States. Yahoo estimates the partnership will boost its annual revenue about $800 million and help end the financial malaise that has battered the company's stock.
"This carefully structured agreement strikes the right strategic balance, enhancing our financial results while advancing our strategic objectives," Yang and Yahoo chairman Roy Bostock wrote Wednesday.
After dropping its buyout bid last month, Microsoft returned with an alternative offer of $9 billion for Yahoo's search engine and a 16 per cent stake in Yahoo's remaining operations. Microsoft maintains that could have helped boost Yahoo's cash flow about $1 billion annually - much more than the $250 million to $450 million expected from the Google partnership.
But Yahoo disputed Microsoft's estimates Wednesday, saying the deal wouldn't have provided a "meaningful" improvement to Yahoo's cash flow, and it would have precluded a sale to anyone else without the software maker's approval.
The Google partnership allows for Yahoo to be sold, although the escape clause includes a break-up fee of up to $250 million.
Microsoft didn't immediately respond to a request for comment Wednesday. The software maker has previously said it remains available to discuss a limited deal with Yahoo while emphasizing it's no longer interested in buying the company in its entirety.
Wednesday's developments seemed to disappoint investors, whose hopes had been raised by the reports that Yahoo might abandon the Google partnership for a Microsoft deal. The reports were published on technology blogs and an online news site owned by CNet Networks Inc.
