Yahoo Chief Says Microsoft Was the Stubborn One

SAN FRANCISCO — People involved in relationships that end abruptly often have grossly conflicting accounts of what went wrong. On Monday, Jerry Yang gave his version.

In an interview, Mr. Yang, Yahoo’s co-founder and chief executive, addressed Microsoft’s surprise $44.6 billion bid to buy his company and the three-month corporate tussle that ensued.

He said he was open to selling Yahoo to Microsoft all along, but that Steven A. Ballmer, Microsoft’s chief executive, and his deal makers ultimately declined to negotiate and withdrew their proposal on Saturday with little explanation.

“They chose to walk away after we put a price on the table, and they didn’t want to negotiate,” Mr. Yang said. “From my perspective, we were open all along to selling to Microsoft. We just feel Yahoo, either stand-alone or with Microsoft, is worth more than what they put on the table.”

Mr. Yang’s account conflicts with that of Microsoft’s advisers and executives. They have said that they received no counteroffer from Yahoo for three months, after Microsoft’s deadline to consummate the deal had expired. They also say that Mr. Yang and his board settled on a price of $37 a share and ultimately refused to budge.

Microsoft had raised its initial bid to $33 a share when Mr. Yang and his co-founder, David Filo, met with Mr. Ballmer and other Microsoft executives at the Seattle airport on Saturday. After that meeting, Mr. Ballmer made public a letter to Mr. Yang withdrawing the offer. “I am disappointed that Yahoo has not moved towards accepting our offer,” he wrote.

In the interview Monday, Mr. Yang and Roy Bostock, Yahoo’s chairman, said that throughout the process they were open and receptive to a merger with Microsoft. Mr. Yang said that he spent personal time alone with Mr. Ballmer but that they were ultimately unable to bridge their differences.

Mr. Yang also looked ahead to the daunting task of guiding Yahoo’s growth as an independent company — under heavy scrutiny. Mr. Yang — who last June took control of the company he co-founded, acting after the departure of the prior chief, Terry Semel — must now quickly demonstrate that Yahoo can increase its revenues and share price while navigating an online advertising industry that is quickly coming to be dominated by Google.

“I feel like we now have the task to continue to build shareholder value,” he said. “This is just creating another set of challenges we have to overcome as a company. We have to show the world the opportunity that we have been talking about for the last three months.”

One immediate problem for Mr. Yang is frustration among shareholders — including some of the largest ones. In reaction to the deal’s collapse, Yahoo’s stock fell almost 15 percent on Monday, to $24.47.

“I am extremely angry at Jerry Yang and at the so-called independent board,” said Gordon Crawford, portfolio manager for Capital Research Global Investors, which owns 6 percent of Yahoo. The firm’s parent company owns a total of 16 percent of Yahoo, making it the largest shareholder.

Mr. Crawford questioned a statement from Mr. Bostock in which he said the company was pleased that so many shareholders had supported its position.

“I would love to know who these shareholders are,” Mr. Crawford said. “It’s none of the ones that I talked to today. Everybody I talked to would have sold their stock at $34.”

“I’m hoping that there is such an outpouring of outrage that the board is embarrassed into revisiting this thing,” Mr. Crawford added, “but I’m not optimistic about that.”

Making Mr. Yang’s job even harder is the recession’s effect on the online advertising market and intense day-to-day scrutiny from Wall Street analysts and shareholders, who will view any more vague long-term plans from Yahoo’s management team with skepticism.

“Yahoo is now in a position where it has to prove its worth quickly,” said Derek Brown, an analyst at Cantor Fitzgerald & Company. “It’s as if there are many things happening behind the scenes that have given Yahoo management so much confidence. We need to see what those things are.”

Mr. Yang argued that the Microsoft bid had opened up new doors for Yahoo. “We feel Microsoft approaching us has created an opportunity for us to talk to just about anybody and everybody in the industry,” he said. He said the company would do new deals “in a way that ensures that it’s the right thing to do for Yahoo, and not because of some time pressure.”

One of those deals could be a tie-up with its chief rival, Google. In April, Yahoo conducted a two-week advertising test with Google, whereby Google served up its own more lucrative ads on 3 percent of Yahoo searches in the United States. The companies said the trial was successful and that they were exploring an extension of it, though some analysts say that could raise antitrust issues in Washington.

“Anything we might do with Google would allow us to maintain the ability to compete in what is important to us,” Mr. Yang said. He declined to say whether Yahoo would pursue such a deal.

Christa Quarles, an analyst at Thomas Weisel, said a deal with Google could have the long-term effect of strengthening Yahoo’s largest rival. “At the end of it you wouldn’t have an alternative to Google,” Ms. Quarles said. “It would be thrust into the very powerful position of being the only real provisioner of paid search.”

Yahoo might also consider tie-ups with AOL, a division of Time Warner, and MySpace, a division of News Corporation, though shareholders and analysts seem unenthusiastic about those options. Mr. Yang would not address speculation about those deals.

He did want to address what he said was a misconception: that Yahoo executives celebrated the news of Microsoft’s withdrawal and viewed it as a victory. “I was not witness to any celebration, and we do not consider it a victory. I would have been personally very happy to do a deal with Microsoft,” he said.

Mr. Yang is now left without that deal — at least if Microsoft is serious about going in another direction and closing this chapter in its history.

At the very least, Mr. Yang has impressed some in the industry with his gumption in rejecting the most highly capitalized technology company on the planet.

“It’s pretty bold to turn down a 70 percent premium,” said Peter Falvey, managing director at Revolution Partners, a technology investment bank. “Long term, do I think he should have taken it? Yes, I do. But he’s obviously got guts.”

Google Ends Microsoft’s Yahoo Search

Microsoft and Yahoo were pushed to the brink of a multibillion-dollar marriage and then to a sudden breakup this weekend by the same player.

It was Google, in the odd dual role of both unwitting matchmaker and self-interested spoiler.

Google’s phenomenal rise, after all, prodded Microsoft, the dominant technology company for more than two decades, to court Yahoo. And Google’s success also weakened Yahoo enough to give Microsoft the sense that it could buy the company at a good price.

A combined Microsoft-Yahoo would create a powerful competitor, and Google early on indicated that it would fight the merger on antitrust grounds in Washington and Brussels.

But Google played a part in killing the deal, for now at least, by acting more as friend than foe. It offered to let Yahoo use its more sophisticated search advertising technology, which by some estimates would have meant $1 billion in additional cash flow a year for Yahoo. The partnership would also bring Google more revenue.

The prospect of such a partnership emboldened Yahoo’s board to demand more money for the company and eventually caused Microsoft to rethink its strategy.

Steven A. Ballmer, Microsoft’s chief executive, cited the proposed Google partnership as the main reason for not pursuing a hostile bid and instead walking away on Saturday.

“Such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us,” he wrote Jerry Yang, Yahoo’s chief executive, in a letter, and cited five specific reasons Google would be bad for Yahoo.

Yahoo may well pursue the partnerships with Google, its main rival, to bolster its depressed stock price. Yahoo shares dropped 15 percent, or $4.30 Monday, to $24.37. The two companies refused to comment.

Not surprisingly, analysts are saying the Microsoft-Yahoo story has one clear winner: Google. And its stock price reflected that thinking Monday. More than $4 billion was added to Google’s value as the stock price rose 2.34 percent.

Not yet 10 years old, Google has emerged as a powerhouse that is wielding tremendous power in the world of technology and beyond. It was able to influence a government auction of broadcast spectrum. It nudged several cellphone companies into opening up their networks to the phones of rivals.

Its influence is all the more surprising, because its economic power is still derived largely from a single, seemingly prosaic business: the ability to place interesting text advertisements in front of people when they do searches. Advertisers pay for those ads — sometimes $1 or less — only when users click on them. In a sense, Google has built a highly profitable $16.6 billion empire a dollar at a time.

“They are the company that is going to have more influence and more control over the structure of the world information industry than any other,” said David B. Yoffie, a professor at the Harvard Business School. “The right way to think about Google is they are the next Microsoft.”

The mission set by Google’s two founders, Larry Page and Sergey Brin, to organize all the world’s information and make it universally accessible and useful is every bit as ambitious as Microsoft’s goal, in the early 1980s, to put a PC on every desk and in every home, said Tim O’Reilly, chief executive of O’Reilly Media.

“Microsoft succeeded,” said Mr. O’Reilly, producer of the Web 2.0 Summit, a high-profile industry conference. “Now Google has an incredibly audacious goal. Great companies do come from big ideas and people who are willing to go after really big ideas.”

It is the combination of Google’s economic power and its unbounded ambition that strikes fear in industry leaders in the world of technology, and beyond, in advertising, media and telecommunications. In part that is because Google wields power more subtly, and perhaps more effectively, than other big companies ever have.

For instance, this year Google rattled some of the biggest players in the telecommunications industry. The company played an important role in persuading the Federal Communications Commission to impose “open access” conditions on an auction for a portion of the nation’s airwaves. The conditions require that any network using those airwaves allow any phone and any software to run on it. Such a rule breaks the established business model of the cellphone industry, where carriers have significant control over what phones their customers can use.

Google backed its lobbying for the conditions with the promise to bid at least $4.6 billion, the minimum price set by regulators for the spectrum. Google then bid that amount, not with the intention of winning, but simply to force the open-access conditions. Verizon Wireless ultimately won rights to the spectrum.

“They just wanted to saddle a potential competitor with those obligations,” said Scott Cleland, a telecommunications analyst and frequent Google critic.