12.2. THE BATTLE OF YAHOO!

The 2008 fight over Yahoo! turned the intense rivalry between the two companies into open warfare. It escalated into a battle of biblical proportions. It was a war for power and control in the digital world—the former David versus the former Goliath—Google against Microsoft.

As early as 2006, Yahoo!'s financial results began to weaken, largely due to competition from Google. Google was going after Yahoo!'s core businesses with its Gmail, Google Video, personals, and other features within Google Base.

Late that year, Microsoft and Yahoo! began discussions about hooking up, either in partnerships or by acquisition. Yahoo! sent Microsoft packing, saying the time wasn't right. The situation at Yahoo! continued to deteriorate, and in January 2008, Ballmer made a $44 billion, $31-per-share offer to acquire Yahoo!.

Yahoo! had many attributes that Microsoft found attractive, especially its search technology and its ownership of Overture. Yahoo! balked at Microsoft's offer, and in May, Microsoft upped the ante to $47.5 billion, or $33 per share. Again, Yahoo! Chairman Jerry Yang refused, saying that Yahoo! was worth at least $37 per share.

By now, shareholders, especially investor Carl Icahn, were upset with Yang. The battle for control of Yahoo! eventually prompted several pension funds to sue the Yahoo! board for rebuffing the Microsoft offer. Yang's actions also pitted billionaire investor Icahn against Bill Miller, Legg Mason chief investment officer and ...

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