Digital Media

Microsoft's CEO Steve Ballmer reiterated his interest in landing a search deal with Yahoo during a midyear strategic update with analysts Tuesday, according to a CNBC report.

But while Ballmer is apparently willing to re-engage in a dialogue with Yahoo regarding a potential search deal, the software giant has been "rebuffed and ignored" by Yahoo's new CEO, Carol Bartz, on any overtures it has made to initiate discussions, said a CNBC reporter, citing anonymous sources.

Yahoo was up 5 percent to $12.57 a share in pre-market trading.

Yahoo, meanwhile, apparently is operating without a top M&A executive, following the departure of Gerald Horkan, the company's senior vice president of corporate strategy, according to a report in The Wall Street Journal.

Horkan, who spent most of last year as Yahoo's dealmaker in Microsoft's failed bid to acquire the search company for as much as $33 a share, left Yahoo a few weeks ago and has not been replaced, the Journal reports.

Yahoo, Microsoft, and AOL each carved out a little more U.S. search market share in January, but Google still had the biggest piece of the pie, according to a report Wednesday by ComScore.

Yahoo Web sites accounted for 21 percent of the market (up half a percent) compared to the month before, while Microsoft grabbed an 8.5 percent slice (up 0.2 percent), and AOL nabbed 3.9 percent of the market (a 0.1 percent increase).

Google, while still holding the largest slice of the market by far, accounted for 63 percent of the search industry in January, down half a percent.

One interesting observation from Silicon Alley Insider is Yahoo's consecutive five-month run in posting modest monthly gains in U.S. search market share.

In August, for example, Yahoo's market share stood at 19.7 percent, according to SIA. But in the past five months, it has steadily grown, garnering more than a 1 point increase during that time.

Update 10:58 a.m. PST: Added latest stock price and detail from a Wall Street Journal article.

Yahoo's new chief executive, Carol Bartz, has told employees her first inclination is to hold onto Yahoo's search business, but said she needs to delve further into the subject, according to a Reuters report citing an anonymous source.

Yahoo shares dropped as much as 9.6 percent to $11.22 a share in morning trading Thursday.

Bartz, who addressed employees during a companywide meeting Wednesday, reportedly indicated she has already had an informal conversation with Microsoft CEO Steve Ballmer since accepting the Yahoo CEO post, according to a report in The Wall Street Journal.

Ballmer has repeatedly said he believes the best thing for Yahoo and Microsoft is for the Internet search pioneer to transfer its search business to the software giant.

Bartz's comments regarding her initial thoughts about retaining Yahoo's search business is a case of "common sense," a source familiar with Yahoo's thinking told CNET News.

"It's the right thing to say to keep people happy, while you figure things out," said the source, noting it's too premature to determine how Bartz will come out with her final assessment on Yahoo's search business.

Meanwhile, people familiar with Bartz's companywide meeting noted her presentation was straight-forward, charismatic, with a touch of humor, and well received by employees.

While Bartz provided Yahoo employees with some insight into her thinking, she was less willing to go down that path Tuesday, when the company introduced her as its new CEO.

Yahoo investors weighed in with cautious optimism Wednesday following the appointment of former Autodesk CEO Carol Bartz as the embattled company's chief executive.

Yahoo, which after the markets closed Tuesday, climbed as high as 3.2 percent during morning trading Wednesday to $12.49 a share, while the broader markets were down.

While noting that Bartz, for the most part, lacks name recognition beyond Silicon Valley and has little experience with media companies and the Internet, investors pointed to her reputation as a strong operator as boding well for Yahoo's future.

"Yahoo needs more of an operator than a visionary right now," said Kenneth Smith, senior portfolio manager for Munder Capital Management, who runs the Munder Internet Fund. "Yahoo has missed out on some opportunities like social networking, but at the end of the day, the company needs someone to manage all their valuable assets and stem the brain drain."

Smith, whose fund held 727,280 shares of Yahoo as of November 30, pointed to the company's frequently visited Web sites as a core asset. But he noted past redesigns of the sites have appeared somewhat haphazard and that's an issue he believes can be addressed with strong operational skills.

Bartz, Smith noted, had a good reputation while at Autodesk. He added she managed to turn things around with its portfolio of businesses and reignite growth for the drafting and design company.

Shareholder activist and Yahoo investor Eric Jackson, meanwhile, said he was initially disappointed with the selection of Bartz, but in the last 24 hours has become cautiously optimistic as more information about the new CEO has surfaced.

Nonetheless, Jackson noted some concerns still linger, such as the fact that Bartz managed a smaller workforce than what she'll encounter at Yahoo, and he questions her ability to manage a high-growth business given that he considers Autodesk to play in a sector with slower growth.

"I'm still skeptical. I have a show-me attitude," Jackson said. "Right now, Yahoo is guilty until proven innocent."

Jackson said he hopes Bartz will demonstrate within the next 30 to 60 days that she has clear ideas of what she is going to do to reignite Yahoo's various media businesses.

Smith, however, said after Bartz has "one quarter under her belt," he hopes she'll show signs of grasping the issues that plague Yahoo and its solutions. And by the end of the second quarter, he hopes to see Bartz implement some of those solutions.

"I think it'll be the second half of the year before we begin to see some impact," Smith noted.

Smith, while declining to say whether he plans to increase his fund's position in Yahoo now that Bartz has been named CEO, noted that the fund has generally been increasing its stake in the Internet search pioneer over the last year.

Jackson said he plans to sit it out on the sidelines for now and keep an eye on Bartz's performance before considering whether to increase his holdings, which current are a few hundred shares.

Wall Street analysts, meanwhile, where largely neutral to bullish on Bartz's appointment, noting there was not much more the new CEO could do to damage Yahoo.

Analysts with Cowen & Co. noted in a research note Wednesday:

We do not believe the announcement of Carol Bartz as CEO and the resignation of president Sue Decker will result in a material change in Yahoo's prospects. We think the odds of a search deal with Microsoft and/or an acquisition of AOL increase under the new CEO, but the terms may not be highly attractive due to the current economic environment.

UBS Securities analyst Ben Schachter, meanwhile, sounded more bullish in his research note Tuesday regarding Bartz's appointment as Yahoo CEO:

Vision still undetermined, but progress now at least possible.

With Ms. Bartz first approached just this past December, her full vision for the company must still be evolving. Still, simply by putting in place a capable outsider with a strong track record, Yahoo should finally be able to make decisions on various strategic and operational choices.

And while we don't know the new direction just yet, clearly Ms. Bartz and the board have discussed their views and walked through scenarios, including potential partnerships (MSFT, AOL, etc.). Given the recent stagnation at Yahoo, we think almost any movement from here will be forward.

One source, familiar with the board's thinking, noted that the company may not necessarily keep Microsoft at bay while Bartz ramps up her learning curve at the company.

Depending on the type of offer that Microsoft may bring to its door, Yahoo could potentially react immediately, noted the source.

"It depends on their offer," said the source. "If they were to come to (Yahoo) with an offer of $33 a share, (the company) would be stupid to say no now."

Microsoft, or not, Yahoo's board believes it has landed one of the top technology executives.

"(Executive recruiter) John Thompson was told to get the top five candidates, no matter where they were from," said the source.

Bartz, who was the only candidate offered the job, was selected for her track record, added the source, noting it was among a number of other characteristics that made her the top choice.

Investors Jackson and Smith hope Bartz has it within her skill set to signal to Microsoft a willingness to sit back down at the negotiating table.

Both investors do not expect anything to happen with Microsoft in the immediate future, with Jackson predicting as long as one to two months and Smith as long as three months before signs will surface that any such activity is underway.

Update at 11:21 a.m. PST with more information on Yahoo's challenges over the past year.

Yahoo has offered the chief executive post to former Autodesk CEO Carol Bartz and she intends to respond to the offer "quickly," said a source familiar with the talks.

Bartz, should she accept the post, would take over the role held by Yahoo's co-founder and embattled CEO Jerry Yang, who came under fire after failed buyout negotiations with Microsoft.

Although Yahoo has not received word that Bartz has accepted the post, The Wall Street Journal is reporting that she will take the position.

A Yahoo spokeswoman declined to comment on Bartz. An Autodesk spokeswoman also declined to comment.

Bartz is a well known, respected executive within Silicon Valley, who led the drafting and design software maker Autodesk for 14 years, before , as part of a planned transition of the company.

During Bartz's tenure, Autodesk largely outperformed the broader markets and particularly gained ground in mid-2003 to late 2004.

On Tuesday, Yahoo shares fell about 2 percent to $11.94 in mid-morning trading, despite reports of Bartz's impending appointment.

Bartz comes to a company that has been embattled over the past year.

Early last year, Microsoft launched an unsolicited bid to buy the company, later walking away after a $33-a-share offer was rejected by Yahoo. The search pioneer was also the target of a proxy fight by shareholder activist Carl Icahn, who eventually joined Yahoo's board as part of a settlement with the company. And as the year came to a close, Yahoo's hope of ramping up its revenue with an advertising search partnership with Google fell by the wayside. The search giant walked away from the deal when the U.S. Department of Justice notified the companies it would challenge such an arrangement under antitrust grounds.

Shortly after the Google deal collapsed, Yang announced he would step down as CEO as soon as a replacement was found.

In addition to Bartz, other strong contenders the company had considered included Yahoo President Sue Decker, as well as former Vodafone CEO Arun Sarin.

Update January 8 at 12:44 p.m. PST: Added Yahoo's response.

A group of investors are reportedly putting together a buyout deal for Yahoo, which would call for Microsoft's financial backing, according to a report in TechCrunch.

Such an arrangement would call for the investment group to pay a premium of approximately 20 percent to Yahoo's current share price, which closed Wednesday at $13 a share, for the entire company.

The investment group would take Yahoo, which would have a $20 billion market cap under those terms, and simultaneously sell its search and marketing business to Microsoft under its previous terms presented in June, according to the report.

The software giant would not only buy these businesses from the investment group, but also provide much of the upfront financing the investors group would need to make the initial purchase. Microsoft would treat the funding as a loan to the investment group, which in turn would provide a fixed payment based on Yahoo's future cash flow, according to TechCrunch.

The report notes, however, that Microsoft has yet to agree to such a proposal.

Yahoo declined to comment on speculation about the deal.

Microsoft CEO Steve Ballmer on Friday said a search deal with Yahoo would be better if done sooner than later, but noted it wasn't a factor in the hiring of former Yahoo search executive Qi Lu, according to a report in The Wall Street Journal.

Microsoft announced Thursday that it had hired Lu as president of its online services business. Lu was formerly the vice president of Yahoo's e-commerce and search business. Microsoft has repeatedly expressed interest in acquiring the latter.

In responding to the Journal's question on whether Lu's hiring will make any potential integration of Yahoo's search assets easier for Microsoft, should a deal be done, Ballmer said:

I think a search deal makes great sense for Microsoft, and Yahoo, and I think I've been very open about that. That's as true with Qi joining us as it was before Qi joined us. Obviously, the logistics of any such integration...can only be simpler by having somebody who will know both sides. But that was not a factor in hiring Qi.

Our focus on portal and search is super-strong, and even if we never do a Yahoo deal or anything else, I wanted to have Qi come on board. It is kind of a bonus that if something happened with Yahoo I'm sure it's somewhat simpler.

Ballmer noted the two companies are not currently in any talks about a search deal and Microsoft is under no pressure to act on such a transaction.

He added, however, it would be "advantageous" for the two companies to team up on search:

Look, the fundamental basis for doing the search deal with Yahoo has to do with critical mass in the advertising marketplace. It doesn't have to do with technology, or any of these other things, it really is a market phenomenon. Together we would have more advertisers...which means we'd have more relevant ads on our page. We'd have higher monetization levels possible in front of us because there would be more people bidding on more key words. Most importantly, Google would have perhaps a real credible competitor sooner.

I think good ideas are usually better done quickly than slowly, so it would probably be better for both of us, and certainly for Yahoo, if we were to do it sooner than later. But at the end of the day, that would have (to) be something Yahoo would be interested in as I have expressed our interest.

Lu, who begins his Microsoft job on January 5, said he plans to zero in on such areas as "talent, core infrastructures, and basic processes," that will improve the quality of the company's products and user experience.

Yahoo and Microsoft outperformed the U.S. search industry's 7 percent increase in search results for the month of October, while AOL slipped further behind, according to a ComScore report released Wednesday.

During the month of October, 12.6 billion searches were conducted at home, work, and universities, up 7 percent from September results. Yahoo led the way in growth with a 9 percent increase to 2.6 billion searches, while Microsoft gained 8 percent to 1 billion.

That performance outweighed Google, which posted a 7 percent increase, and far outstripped the struggling AOL unit of Time Warner, which declined by 2 percent in October.

Google, however, still retains a sizable slice of the ever-growing U.S. search pie, holding 63.1 percent of the market share, according to ComScore. And that slice slightly grew last month by 0.2 percent.

Yahoo retained its No. 2 market share position with a 20.5 percent slice, up 0.3 percent. And Microsoft remained status quo with 8.5 percent.

AOL, however, not only saw its U.S. search count decline last month but also its market share, which dipped 0.4 percent, according to ComScore.

Yahoo fell into a new dollar range on Thursday, pushed into the high $8 a share bracket as the broader markets took a beating.

Yahoo closed at $8.95 a share, down 2 percent, as the Dow Jones Industrial Average cratered 444.99 points to close at 7,552.29.

For Yahoo, its shares have not traded at this point since February 2003, while the S&P 500, which fell 6.71 percent to 752.44, has not seen these levels since 2002.

The markets reacted late in the session as signs pointed to a delay in moving a massive bailout for the automotive industry forward.

Last week, Yahoo's shares moved in the $9 a share range and the day before that the $10 a share range.