Investors Says Yang’s Exit Opens Door for Fresh Microsoft Bid

By Brian Womack and Ian King?? From

Nov. 18 (Bloomberg) — Yahoo! Inc. is more likely than ever to be acquired by Microsoft Corp. after Yahoo Chief Executive Officer Jerry Yang said he plans to step down, investors said.

“The strategic necessity here is for this company to merge with Microsoft,” Larry Haverty, a fund manager at Gamco Investors Inc. in Rye, New York, said in a Bloomberg Television interview. The company manages about $24 billion, including Yahoo shares. “This is just unmitigated good news for the Yahoo shareholders.”

Yahoo stock rose 4.4 percent yesterday in late trading as investors predicted that a new CEO may broker an acquisition by Microsoft or a combination with another company. The company’s market value has dropped by more than $20 billion since Yang took over as CEO in June 2007. Discussions with Microsoft ended in failure, an ad partnership with Google Inc. was derailed and talks with Time Warner Inc.’s AOL stalled.

Microsoft and Yahoo trail Google, which controls more than 60 percent of the Internet-search market in the U.S. Microsoft has said that while it’s open to a search-ad deal with Yahoo, it isn’t interested in buying the company outright. Microsoft bid as much as $33 a share for Yahoo this year, and Yahoo now trades at a less than a third of that value. Microsoft may end up paying between $15 and $18 for Yahoo, Haverty said.

Yahoo President Susan Decker is a candidate for Yang’s job, said Brad Williams, a spokesman for Sunnyvale, California-based Yahoo. Yang, 40, will stay on the board and remains CEO until Yahoo finds a replacement, Yahoo said yesterday. He took the top job at the 13-year-old Internet company in June 2007.

`Poker Hands’

“He played one too many poker hands up there and got caught,” said Pat Becker of Becker Capital Management in Portland, Oregon. His firm owns Microsoft shares but not Yahoo. “Microsoft still believes that it needs scale” in the online advertising business.

Microsoft spokesman Bill Cox declined to comment. The Redmond, Washington-based company will hold its annual meeting for shareholders tomorrow.

There isn’t a time frame on finding a replacement for Yang, Yahoo’s Williams said. Yang had been in discussions with the board about seeking a replacement for “some time.”. He will return to his position of Chief Yahoo when the company finds a successor.

“We all agree that now is the right time to make the transition to a new CEO who can take the company to the next level,” Chairman Roy Bostock said in a statement. The company has hired Heidrick & Struggles International Inc. to help find a new CEO.

Shares Gain

Yahoo, owner of the No. 2 U.S. search engine, rose 47 cents to $11.10 in extended trading after closing at $10.63 on the Nasdaq Stock Market yesterday.

Yang’s departure “may open the door for dialogue that might not be there otherwise,” said Michael Cuggino, a portfolio manager at Pacific Heights Asset Management in San Francisco. “It may allow for some new blood, some new energy for maximizing shareholder value.”

Microsoft will probably end up owning Yahoo, said Ben Schachter, an analyst at UBS AG in New York. Yang’s departure highlights the board’s frustration with the lack of progress, he said. Short of a full acquisition, the company could team up with News Corp. or AOL, he said.

Yahoo investors withheld one third of their votes for Yang’s re-election to the board in August. He sidestepped a proxy fight with Carl Icahn, agreeing to give the billionaire investor three slots on the board. Icahn didn’t return calls seeking comment last night.

`Career Risk’

The search for a new CEO may not be an easy one, said Neil Sims, a managing director in the San Francisco office of Boyden, an executive search firm.

“Whoever would inherit that role would be taking a huge personal career risk because they’re handed a company in crisis,” Sims said. “If you were going to rebuild a viable organization, that was the time in 2007 to recruit an accomplished executive.”

Google, based in Mountain View, California, abandoned an agreement to sell ads alongside Yahoo’s search results this month after U.S. regulators threatened a lawsuit to block the partnership, saying it would give Google too much power.

Yang’s plan to reverse Yahoo’s slowing sales growth and profit declines was hampered by the global economic crisis, which caused advertisers to cut back on Internet spending. Yahoo announced plans in October to cut at least 1,500 jobs and reduce the number of contractors as finance, travel, retail and automotive advertisers scaled back their spending.

Yang’s departure won’t fix the long-term challenges to Yahoo stock, Cuggino said.

“It doesn’t make me want to go out and buy it right now,” he said. “There are other issues involved with the business model that go beyond him.”

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