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Icahn cheers on Yahoo-Microsoft deal

By Kenneth Corbin on July 20, 2009 10:49 AM

Carl Icahn, the billionaire investor who made so much trouble for Yahoo last year, has spoken out in favor of a deal with Microsoft, which reportedly could be announced as early as this week.

"I've been a strong advocate of getting a search deal done with Microsoft," Icahn told Reuters. "It would enhance value if a deal got done, because of the synergies involved."

Icahn won himself a seat on Yahoo's board last year after amassing millions of shares and threatening a proxy war to wrest control of the company of then-CEO Jerry Yang and Chairman Roy Bostock to force a deal with Microsoft.

Essentially, the deal would be an advertising partnership, likely involving Microsoft paying billions up front and more down the road in a multi-year play for Yahoo's search business.

Pooling their resources would, in theory, better position Microsoft and Yahoo to compete with Google for the money advertisers spend on search ads. Currently, both suffer from a market-share problem. By the latest comScore rankings, Google performed 65 percent of all U.S. search queries, compared to Yahoo's 19.6 percent and Microsoft's 8.4 percent.

Microsoft gave itself a bit of a boost with the launch of its revamped search engine, dubbed, Bing, but chipping away at Google's lead incrementally is going to be a tough haul, notwithstanding the vow of its CEO to spend billions promoting and improving search over the next several years.

Icahn's concern is with Yahoo, of which he owns about 5 percent. The Web pioneer has been buffeted by the contracting ad market, as well as the extreme distraction of the ongoing deal saga that accompanied its every move last year, and ultimately led to the end of Yang's tenure as chief executive. His replacement, Carol Bartz, has signaled her willingness to do a deal with Microsoft if the price were right, but has refused to discuss specifics.

Yahoo is due to report its second-quarter earnings tomorrow after the market closes.

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