Microsoft execs say they’ve given up on Yahoo

Times Staff Writer

Microsoft Corp. executives ruled out an acquisition of Yahoo Inc. on Thursday, even as they acknowledged that the Internet company would have provided a needed boost in online search, where the software giant trails leader Google Inc.

Chief Financial Officer Chris Liddell told Microsoft investors assembled for an annual day of presentations that the odds of a takeover were “so small as to be essentially negligible,” because the two sides continue to disagree about how much Yahoo is worth.

Chief Executive Steve Ballmer said later that he hoped Liddell had removed any “specter” of uncertainty, adding that his comments were “as black and white on that topic” as any to date.

Liddell said Microsoft believed that Yahoo’s value was declining, so even though Yahoo was now willing to sell itself for the $33 a share that Microsoft offered in early May, Microsoft was no longer willing to pay that.


Liddell acknowledged that Microsoft could not get as far online on its own as it could with Yahoo, but asked: “Does that mean that we should pay anything for it? There has to be some economic justification.”

In a question-and-answer session, an investor asked how Yahoo could have been worth $33 a share May 3 and not worth negotiating for two weeks later, when major Yahoo shareholders had made it clear they would back a sale.

“The deadline passed on what we wanted to accomplish,” Ballmer said.

“Yahoo for us was always a tactic, not a strategy,” he said, complaining that the delays would have pushed regulatory review into the next presidential administration.


More recently, two attempts to buy just Yahoo’s search business fell apart, and Yahoo then co-opted the noisiest advocate for a sale among its shareholders by giving Carl Icahn a minority of seats on its board.

The continuing debate over the failed acquisition overshadowed the rest of Microsoft’s annual showcase for the financial world, where it touts new products and explains its strategy for the next few years.

Executives promised to do a better job in marketing, starting with a campaign to convince consumers that the disappointing Windows Vista operating system was better than they had heard.

Chief Strategy Officer Craig Mundie, who showed off a conceptual prototype that would let people navigate a three- dimensional representation of real-world streets and stores, also pledged to do more to explain Microsoft’s technological vision.


Mainly, Ballmer and others used the day to defend the company’s massive and so far unrewarded investment in online search and advertising, contending that the software power was the only real threat to Google and that a major “ante” in search was the best shot at a $1-trillion market for Internet media.

Without Yahoo, Ballmer said, Microsoft has more flexibility in its approach to search.

“There is a huge, huge, huge new opportunity around the Net and online, and we need to embrace that opportunity,” he said. “We’re anteing, we’re reinventing.”

He suggested that Microsoft would continue to sacrifice 5% to 10% of its operating income to invest in the area.


Several investors and analysts said they accepted Ballmer’s contention that the Internet was crucial and that search and search-based advertising were too important to ignore.

“A lot of people agree that the strategy is right. The devil is in the details and the execution,” said money manager Michael Lippert of Baron Capital, which owns Microsoft shares. “I’m hard-pressed to see it without an acquisition.”

Analysts said they also had doubts about Ballmer’s claims that Microsoft had the right people to take on Google in search, given its past efforts.