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July 20, 2009

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Icahn favors Yahoo-Microsoft alliance

ACTIVIST investor Carl Icahn spoke out in favor of a search deal between Yahoo! Inc and Microsoft Corp, as talks between the two companies appeared to regain momentum.

Icahn declined to comment on the state of any negotiations between Yahoo and Microsoft. He had tried to broker a partnership between the two companies last year, when talks on Microsoft's US$47.5-billion takeover bid for Yahoo fell apart.

"I've been a strong advocate of getting a search deal done with Microsoft," Icahn, who owns about 5 percent of Yahoo and is a director on its board, told Reuters last Friday. "It would enhance value if a deal got done, because of the synergies involved."

Microsoft and Yahoo are close to a long-discussed search and online advertising deal, which could be announced in the next week, according to another source familiar with the matter who is not associated with Icahn.

The news was first reported by the AllThingsDigital blog, which said a deal would involve Microsoft paying Yahoo several billion dollars upfront to take over its search advertising business and guarantee certain payments back to Yahoo.

The two companies have talked about cooperating for months, after Microsoft's bid to buy Yahoo was rebuffed last year and Yahoo's attempt to seal a search advertising deal with Google Inc fell apart under regulatory scrutiny.

Yahoo Chief Executive Carol Bartz said in May that any deal to spin off or combine its search assets will require a partner with "boatloads of money." She said at the time that Yahoo was talking "a little bit" with Microsoft, but gave no details.

Bartz is currently out of the office for two weeks, following knee replacement surgery, according to an e-mail that she sent to her employees earlier this month.

Icahn, whose firm had a 5.4-percent stake in Yahoo as of March 31, said he is a "strong supporter" of Bartz, who took over in January from Yahoo co-founder Jerry Yang.

Bartz has made a number of changes since joining Yahoo, including shutting down underperforming Websites and laying off 5 percent of the Sunnyvale, California-based company's staff.

But investors say a deal with Microsoft is Yahoo's best option, as it will cut costs and create an online entity to better compete with Google.



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