Kara Swisher

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MicroHoo: The Gates Factor


Sure, Microsoft and Yahoo are talking this weekend and they are talking about a lot of configurations of a revived deal to merge the companies together in some way that makes all parties happy.

But make no mistake: It is Yahoo (YHOO) pushing the one-price-buys-all idea, while it is Microsoft (MSFT) that would still prefer to buy just some of Yahoo’s assets, specifically its search and search-ad business.

Why? Look no further than Microsoft Chairman Bill Gates, who has been relatively silent as this whole takeover circus has unfurled over the last several months.

But that does not mean that he has not had an opinion on the proceedings and it has not had a major impact.

And indeed, according to numerous sources I have spoken to in recent days, Gates’s less-than-enthusiastic feelings about buying Yahoo in the first place and his distaste for a proxy fight were among the major reasons his longtime friend and partner, Microsoft CEO Steve Ballmer, pulled back from the deal three weeks ago rather than pay the $37 a share that Yahoo was demanding.

That is not to say that Ballmer went into the unsolicited takeover battle without Gates’s approval. According to sources, Gates told Ballmer his reservations and his long-held preference for building key Microsoft businesses organically over buying.

But Gates told Ballmer that since he was now CEO that he should forge his own style and that Gates would be supportive of his decisions.

Nonetheless, as Yahoo continued to rebuff Microsoft and also hardly engage in meaningful talks and as other Microsoft execs began to voice their opposition to the deal, Gates told Ballmer that a protracted fight would probably not be in the software giant’s best interests.

Gates also stressed Microsoft’s main interest in Yahoo’s search assets over all other parts of the troubled Internet giant.

And when Yahoo’s talks with Google (GOOG) to outsource its online search-ad business became serious and were extravagantly leaked, both Gates and Ballmer had enough.

Still, once again backing his self-picked successor, Gates told Ballmer he would support whatever direction Ballmer would choose.

And the current preference at Microsoft is still the partial deal to buy only search and the search-ad business, including doing a long-term ad monetization deal, while selling off Yahoo’s Asian assets.

While some speculate that it is a ruse on Microsoft’s part to only show interest in the search assets, while coveting the whole company, Microsoft execs have publicly repeated such a preference this week several times.

And while it has not taken a purchase of the entire company off the table, there is strong resistance throughout Microsoft ranks for that and more support for the partial option.

But Yahoo, according to sources, is not interested in this deal, preferring to either sell the whole business or not, in which case it would sign the also controversial ad-outsourcing deal with Microsoft archrival Google.

Major investors are also lukewarm on a partial deal, including corporate raider Carl Icahn, who is waging his own proxy fight against Yahoo.

Why? Because the partial deal is so complex and does not guarantee a clean exit, preferring a complete sale over all choices at anything over $33 a share.

Not that Yahoo cares what Icahn thinks, having–big surprise!–rejected his slate today.

But Yahoo has told major investors that it is aiming to get a price higher than Microsoft’s last bid of $33 a share, although Microsoft has shown almost no indication of raising it.


“Yahoo is convinced they are a strategic imperative for Microsoft, although I think sometimes that their execs must be smoking something,” said one source who has been briefed on the talks. “But they are going for a better price, so we’ll see.”

Indeed, but if there is not a deal by this weekend–another weekend of MicroHoo!–it is highly likely there will not be one and Yahoo will move forward with Google.

That means Microsoft would truly have to be ready to pursue its “organic” strategy that it touted after it broke off talks with Yahoo almost three weeks ago.

Which, BoomTown is guessing, wouldn’t bother Bill Gates at all.