SAN FRANCISCO — The big chill has thawed between Microsoft Corp. and Yahoo Inc.
The two camps began talking last weekend for the first time since Yahoo rejected Microsoft's takeover bid last month and the conversation has continued this week, with senior executives meeting near Yahoo's Sunnyvale, Calif., headquarters to give the software giant a chance to describe its proposal for combining the two companies, people familiar with the situation said Friday. They spoke anonymously because the talks are private.
"It's now a regular conversation and before there was literally nothing going on," one person said.
Both companies downplayed the significance of the talks, which they described as informal because they did not involve investment bankers or discussions of price. Microsoft's bid initially was valued at $44.6 billion, or $31 a share.
Yahoo is simply keeping its options open: "Microsoft expressed interest. We heard them out," another person said.
Yet analysts say the meeting signals that Yahoo's stance has softened as it runs out of other options and faces growing shareholder unrest. Yahoo also may post disappointing quarterly earnings next month amid a worsening economic downturn, giving Microsoft more leverage. Without the Microsoft bid made six weeks ago, Yahoo shares probably would plunge, analysts say.
"I think this thing is in its final stages," Sanford C. Bernstein & Co. analyst Jeffrey Lindsay said.
Yahoo rejected Microsoft, saying its offer undervalued the company. It has been searching for alternatives, exploring alliances with Time Warner Inc.'s AOL and Rupert Murdoch's News Corp. Murdoch recently told investors that he did not plan to fight Microsoft for Yahoo. AOL on Thursday said it had agreed to buy social networking site Bebo in a move analysts said might make a combination with Yahoo less likely.
With the credit markets in turmoil, no other white knight has emerged. And Lindsay expects Yahoo to report another mediocre quarter. Quarterly revenue growth of 15% and annual revenue growth of 14% would make the stock worth $24 a share in a year's time, well below Microsoft's initial offer of $31 a share on Jan. 31, he said.
"It looks to us like Yahoo is out of options," he said, "unless it pulls a rabbit out of a hat."
