No date, but Yahoo, Microsoft are flirting

Time Warner is in talks to take a roughly 18% stake in Yahoo, which would absorb the New York-based media company's AOL online division. Seeking alternatives to Microsoft's unsolicited bid, Yahoo co-founder and Chief Executive Jerry Yang has pushed the exploration of that deal and a separate arrangement to let the more efficient Google sell search-based advertising on Yahoo's pages. That would bring in more money even as Yahoo concedes the lucrative territory to the already dominant Google.

Timing played a crucial role in driving the two sides to the table after months of dickering, said people familiar with the thinking at Microsoft. The maker of Windows and Office software is worried that it would face a greater risk of federal antitrust objections if it couldn't complete a takeover by Jan. 20, when the next administration will take office.

Many complex mergers take nine months to get cleared by antitrust regulators, prompting Microsoft to set a deadline of last Saturday for the companies to enter into meaningful talks.

For its part, Yahoo was concerned that a merger process might linger on, only to be blocked in court by a new administration, which would leave the company in worse shape for competing with Google. Its executives sought a stronger bid from Microsoft to justify taking that risk.

Yahoo's board rejected the initial offer, which was valued at $31 a share in cash and stock, or $44.6 billion, saying it was too little for the leader in online display advertising. The bid's value has declined with Microsoft's stock price to $29.39 a share Friday, or $42 billion.

Yahoo executives floated a figure of $40 a share, which enraged executives at Microsoft, the world's largest software company.

Without formal merger talks, Microsoft declined to raise the bid. Yahoo refused to enter talks without first getting a higher bid.

"It was all kind of silly," said a well-connected hedge fund manager who owns stock in both companies. "There's been a certain amount of dysfunction along the way, perhaps on both sides."

Divisions of opinion about whether a tie-up made sense existed inside both companies, employees said. As the standoff dragged on longer than initially expected, it threatened to exacerbate what would have been, even under the best of circumstances, a difficult combination of corporate cultures and technologies.