Partial Microsoft-Yahoo deal won't appease investors

The big money interests behind the scenes of the Microsoft Corp. and Yahoo Inc. drama -- or in the case of activist investor, Carl Icahn, stridently in front -- are unlikely to be happy with any revived talks between the two companies short of Microsoft's making a full takeover of Yahoo, say industry and financial experts.

Unhappy Yahoo investors bet too much money on a $45 billion-plus Microsoft acquisition of the beleaguered Web company. Emboldened by Icahn's public threat last week to force a proxy fight and resulting sale of Yahoo, they are demanding that the paper profits they were counting on rematerialize again.

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"At this point, somebody has to buy [Yahoo]," said Michael Angell, editor of Flashwire Daily, a newsletter about mergers and acquisitions published by investment data provider, FactSet Research Systems Inc.

Others say Yahoo's dismissal of Icahn last week may have inadvertently and unwisely insulted the notoriously tough corporate raider.

"The way [Yahoo] responded was relatively personal," said Rob Enderle, an analyst at San Jose-based Enderle Group. "They basically implied that he was clueless, so that makes it much more likely that he's going to want to drive through this to prove that he's not."

Microsoft said late Sunday that it might now buy part of Yahoo rather than the entire company. That would presumably be Yahoo's search business, which is second in the overall market behind Google Inc.

Yahoo shareholders such as Eric Jackson, president of Ironfire Capital, an activist investment firm in Naples, Fla., say a partial deal is "not as preferable" as an immediate buyout.

"It's a half-step that Yahoo might embrace as a way of retaining independence, and Microsoft might embrace as a foothold to the eventual endgame," he wrote in a blog. "But the endgame is the endgame. Microsoft will buy Yahoo"

Other experts suggested Microsoft and Yahoo might be negotiating a joint-venture in the online ad business, to present a stronger challenger to Google.