Yahoo meets with Microsoft to avert hostile takeover

Yahoo Inc. was engaged in serious negotiation talks with Microsoft Corp. today as both sides tried to avert a hostile takeover battle, according to people familiar with the discussions.

Microsoft has expressed willingness to pay more than the $44.6 billion it offered Jan. 31, those people said on condition of anonymity because the talks were confidential. One person said Microsoft had increased its bid by “several dollars” a share. Further details were unavailable.

The people cautioned that no deal was imminent.

Yahoo shares gained $1.86, or 7%, to $28.67 on reports that the two companies were closer to a deal, as investors hoped Yahoo would exact a higher price from the Redmond, Wash.-based software giant. Microsoft shares fell 16 cents to $29.24.

Microsoft and Yahoo declined to comment.

Microsoft had vowed to launch a proxy fight to take control of Yahoo’s board of directors if the Sunnyvale, Calif.-based Internet company didn’t agree to a buyout deal by last Saturday. But this week passed with no escalation of the takeover fight, which has dragged on for three months.

Microsoft can’t be certain it would win a potentially long fight for control of Yahoo, especially at the cash-and-stock offer currently valued at $29.39 a share, and it would be sure of losing more Yahoo executives during the delay.

Yahoo, whose board of directors was meeting today, has been trying to wring at least a few dollars more per share out of Microsoft. The negotiations might accomplish that without the distraction of a long public battle.

Yahoo had repeatedly rejected Microsoft’s offer as too low. It has also aggressively sought alternatives such as a tie-up with Time Warner Inc.’s AOL unit and a partnership with rival Google Inc.

Even as Microsoft executives have said publicly that they had made their best offer, insiders for weeks have said the company was eager to clinch a friendly deal to speed up the process and improve its chances of retaining Yahoo talent.

The battle of the words and wills might ultimately end in a truce because of Microsoft Chief Executive Steve Ballmer’s conviction that Yahoo represents Microsoft’s best shot at challenging Internet leader Google, which dominates the online advertising market.

“Yahoo is not a strategy, it’s a part of a strategy,” Ballmer told employees in a meeting Thursday, according to a transcript. “We’re willing to pay for that at some level, and beyond that level we’re not willing to pay for it.”

The world’s largest software maker could still build an Internet advertising business to rival Google without buying Yahoo, Ballmer said at the meeting. He contended that Microsoft has the technology, but needs the customers and advertisers that Yahoo could provide to gain momentum.

“I know exactly what I think Yahoo is worth to me, exactly,” he said. “I won’t go a dime above, and I will go to what I think it’s worth if that gets the deal done.”

 joseph.menn@latimes.com

 jessica.guynn@latimes.com