Microsoft Corp. continued to distance itself from Yahoo Corp. on Thursday, telling the people it had lined up to nominate to the board as part of a prospective hostile takeover battle that their services were no longer needed, according to a person familiar with the conversations.
Since it withdrew a $42-billion bid to buy Yahoo on Saturday, the world's largest software company has been saying that its pullback was not a negotiating tactic and that the company would not put the matter before Yahoo shareholders by launching a proxy fight.
Yahoo's board, which has sent mixed signals about its eagerness to end the three-month courtship, gave Microsoft as little time as possible to change its mind about going hostile. It immediately set a date for its annual meeting, allowing just 10 days to nominate potential directors.
Disparaging Yahoo's leaders for holding out for $37 a share when Microsoft bid only as high as $33, some investors in the Web portal still had been hoping that they could either force the company back to the table or entice Microsoft to reenter the fray with a slate of directors. They were disappointed Thursday at the disappearance of the latter prospect, but still bid Yahoo shares up 58 cents to $26.22.
One person on the Microsoft slate has been approached by a number of shareholders exploring the possibility of running a slate, a person familiar with the situation said.
"Five days later, investors' anger hasn't abated one bit," said Eric Jackson, who leads a group of disaffected Yahoo shareholders. He said he was still trying to draft a slate that might include some of Microsoft's choices.
"I'm trying to get some credible and independent people with knowledge of the space," Jackson said. "I'm talking to lots of potential directors. I think highly of many of the former Microsoft slate people."
Jackson's fallback plan is to orchestrate a protest "no" vote against the current directors, which could be easier than putting together a slate, said Patrick McGurn, special counsel at proxy advisory firm RiskMetrics Group. That wouldn't force anyone from office, but it would provide a referendum on Yahoo's plan to stay independent and seek smaller business or investment deals with the likes of Google Inc. and Time Warner Inc.
"Such a protest vote could be potent, since it could draw support from both fans and foes of the pulled Microsoft offer. There's no deadline for filing and no need for large out-of-pocket expenditures," McGurn said.
Separately, top Google executives told reporters Thursday that the dominant Internet search engine is hopeful that it can put together a deal to place its text advertisements next to Yahoo's search results. Such a deal would boost Yahoo's revenue. Google makes as much as 70% more in sales from each search query than Yahoo, Yahoo said in March. Google executives declined to say how far along discussions are. Co-founder Sergey Brin said they offered an advertising partnership to give Yahoo "choices."
"They were under a hostile attack and we wanted to make sure they had as many options as possible," Brin said at a news conference at the company's Mountain View, Calif., headquarters. But Google was glad the deal was scuttled.
"We are happy that is not going to happen," Google Chief Executive Eric Schmidt said. He expressed concern that should Microsoft buy Yahoo, it would amass too much market share in e-mail and instant messaging and limit consumer choice. A long-term ad deal with Google probably would torpedo the chances of another Microsoft bid if Yahoo continues to struggle. The hopes for another bid and the prospect of a partnership with Google have buoyed Yahoo's stock.
Microsoft has said that a partnership between Yahoo and Google would harm competition in the online advertising market. Google executives said Thursday that they could structure an advertising partnership with Yahoo in such a way that would allay regulators' concerns. Analysts speculate that the partnership would be run as an auction, with other rivals having the option of showing ads on Yahoo.
The Justice Department is reviewing a two-week search-ad test by Yahoo and Google that concluded recently, and antitrust experts say a partnership would provoke intense scrutiny.
"We believe in companies' having choices about their destiny," Brin said. "Certainly with a [Silicon] Valley company like Yahoo, we think we want to support their ability to have a choice."
Menn reported from Los Angeles, Guynn from Mountain View.