Conflicting reports are swirling over a potential deal involving software giant Microsoft Corp. (MSFT) and search engine Yahoo Inc. (YHOO). While a London Times report said Microsoft is negotiating a deal to buy the search business of Yahoo, a popular blog, citing an official said to be involved in the deal, precluded the possibility of such an arrangement.
According to the Times report, Microsoft intends to support a new management team led by ex-AOL Chairman and CEO Jonathan Miller and former Fox Interactive Media President Ross Levinsohn to take control of the search business. The software giant will provide $5 billion to back the duo and the two executives would raise an additional $5 billion from external investors.
However, a blog post by the Wall Street Journal's All Things Digital, owned by News Corp. (NWS), has termed the report "total fiction". The influential U.S. blog said Levinsohn denied the report. The Times of London is also owned by News Corp.
About the money Microsoft is providing, The Times said without citing sources, "This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo. External investors would also have the right to appoint three of Yahoo's 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services."
Talks of an alliance between Microsoft and Yahoo, the No. 3 and No. 2 players in search, have been doing the rounds for about a year now. Keeping its eye firm on the lucrative internet advertising market, which is now led by No.1 search engine Google Inc. (GOOG), Microsoft made several advances to court Yahoo. In spite of investing billions of dollars, Microsoft has not been able to make a significant headway in the search market, while Yahoo more than doubled its share.
Although Microsoft approached Yahoo earlier in the year with a $44.6 billion offer, the search engine's co-founder Jerry Yang, in his capacity as chief executive officer, did not approve of the deal. Though Microsoft sweetened its offer further, Yang was not satisfied and went ahead trying to broker an advertising deal with No. 1 search engine Google.
Microsoft later proposed an offer to take over the search engine operations of Yahoo, which was also turned down by the company. Together, Microsoft and Yahoo would have controlled over a quarter of the market for animated advertisements and colorful display banners.
Yang's actions were criticized widely by investors, including activist investor Carl Icahn, who thought Yang was not ready to let go of the company he co-founded. Icahn, who is Yahoo's biggest shareholder, began a proxy war and wanted the board to be revamped. However, Yang managed to appease him by giving three seats. To make matters worse for Yahoo and Yang, Google last month decided to terminate its web-advertising agreement with Yahoo, citing concerns from government regulators and some advertisers about the agreement.
On November 18, bowing to investor pressure, Yang revealed his intention to step down from Yahoo chief executive's post. Yahoo's Board of Directors has initiated a search for a new chief executive.
Last week Carl Icahn boosted his stake in Yahoo to nearly 5.5% by purchasing about 6.8 million more shares of the company, fuelling speculation that the choice of a new chief executive officer at Yahoo is likely to be sooner than later and most likely of Icahn's choice.
There has also been speculation that Microsoft CEO Steve Ballmer is waiting for the new CEO at Yahoo to initiate discussions of a fresh deal. Ballmer is once reported to have said that Yang was an impediment to striking a deal with Yahoo.
Meanwhile, the U.S. blog, quoting sources at Yahoo and Microsoft, said they "scoff at such a deal now taking place or that either side has been in any such discussions of late." The blog pointed out that Yahoo's entire market cap is only $16 billion.
Separately, Yahoo said in a statement that it inked a deal with Virgin Media whereby Yahoo! oneSearch would power the Internet search experience on Virgin Media's new, enhanced mobile portal.
Yahoo! oneSearch will provide relevant information on several topics, as varied as news, financial information, weather conditions, Flickr photos and lottery results, to Virgin Media's mobile consumers. It will also display relevant ringtones, wallpapers, games and other content within search results.
The deal is being viewed as an attempt by Yahoo to have an early mover advantage over arch rival Google in the nascent mobile search and advertising market.
YHOO closed Friday's regular trade at $11.51, up $0.93 or 8.79% from the previous close, on 12.45 million shares.
Shares of Microsoft finished up the regular trade on Friday 1.32% lower from the prior close at $20.22 on 31.37 million shares.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.