Ballmer becomes lone voice at Microsoft's helm

Steve Ballmer has been CEO at Microsoft Corp for eight years, but he will finally get to move into the corner office vacated by Bill Gates, the college friend who brought him to the company nearly three decades ago.

The pressure of leading the world's largest software maker will only escalate in the wake of a bungled attempt to acquire Yahoo Inc, a move that forced the Web pioneer into the waiting arms of Microsoft's arch rival, Google Inc.

Adding fuel to the fire has been a lukewarm reception by customers for the company's flagship product, Windows Vista.

"The pressure is certainly on," said Alan Davis, analyst at investment firm D.A. Davidson.

For the first time in his career, the 52-year-old Ballmer, whose public histrionics often overshadow a sharp intellect and a gift for numbers, must shoulder the weight of Microsoft's future without Gates, who stepped down on Friday from the company he co-founded to focus on philanthropy.

Their partnership was forged at Harvard University, where the pair formed an unlikely friendship: Gates, the middle child of a prominent Seattle family, and Ballmer, a Detroit native whose parents never went to college.

They both lived in a dormitory full of "anti-social math types," according to Gates. Ballmer, outgoing and involved in many social clubs on campus, seemed to be a study in contrast to the aloof Gates, who preferred all-night programming sessions and poker games.

However, the pair shared a love of math and bonded over their reputations as energetic guys. To this day, they still engage each other in numbers games, calling it "math camp."

After college, Ballmer went to work at Procter & Gamble Co, sharing an office with current General Electric Co CEO Jeffrey Immelt, who has said the two disliked a common boss and would pass the days playing garbage-can basketball.

Ballmer spent a year at Stanford University business school before Gates persuaded him to drop out and become Microsoft's first business manager. A month after joining, he found it was running behind on orders and its engineers were overworked.

"I decided to quit," Ballmer said at an employee event to mark Gates's last day at Microsoft. "I said, 'Jeez, I just dropped out of business school to come to a 30-person company as the bookkeeper'."

Gates persuaded Ballmer to stay at the company over dinner, explaining Microsoft's ambitious vision: to place a computer on every desk and in every home.

"SCARY" MANAGEMENT

Microsoft executives talk about Ballmer's ability to digest large chunks of data, while carefully probing business proposals for weaknesses in logic or reasoning.

Ballmer's sales and marketing prowess complemented Gates's technical acumen as Microsoft grew from a fledgling start-up into a world-beating software company.

He worked up the ranks, becoming Microsoft's president in 1998 and replacing Gates as CEO in 2000. Ballmer is Microsoft's second-biggest shareholder after Gates with a 4.3 percent stake in the company, valued at more than $11 billion.

Michael Silver, analyst at research firm Gartner, describes Ballmer's management style as "scary," but credits him for being a good listener to the needs of his customers.

"Steve's a bright, tough guy and a good marketeer," said Silver. "His personality can be very imposing."

Ballmer often grabs headlines with sharply worded jabs at competitors. He once called free Linux software "a cancer" and dismissed Web search leader Google as "a one-trick pony."

His exuberance for all-things Microsoft has also earned him viral video fame on par with lonelygirl15 or Obama Girl. Video of Ballmer's enthusiastic support for software developers has been viewed more than 1 million times on YouTube, a performance that earned him the unflattering nickname of "Monkey Boy."

"He was always the foil to Gates," said Mary Jo Foley, author of "Microsoft 2.0: How Microsoft Plans to Stay Relevant in the Post-Gates Era."

"Gates is such a serious, plodding, methodical guy and Ballmer knew that to be part of the dynamic duo with Bill, he needed to be the opposite."

Microsoft proposes alternative deal to Yahoo

Microsoft Corp said on Sunday it proposed an alternative deal to Yahoo Inc rather than a full acquisition, but the move was unlikely to win favor with financier Carl Icahn, a person familiar with his thinking said.

Icahn launched a proxy campaign on Thursday to replace Yahoo's board with directors who would reopen talks with Microsoft, saying Yahoo had acted irrationally in refusing the giant software company's $47.5 billion bid.

Microsoft walked away from its pursuit of Yahoo two weeks ago after three months of negotiations when Yahoo's board rejected Microsoft's sweetened offer of $33 a share, saying the company was worth at least $37 a share.

The software giant's move on Sunday was likely to prompt the billionaire investor to press Yahoo to further pursue a possible alliance with Google, the source said.

"Microsoft is trying to get the milk without buying the cow, and if you look at Icahn's history, he has never been used that way," said this person. "He does not want to see Yahoo pushed into some joint venture with Microsoft and is not going to be used to push Yahoo into it."

Microsoft's statement on Sunday said it was "considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo." It did not clarify what that alternative might be.

The New York Times reported that Microsoft and Yahoo may form a partnership or joint venture for search-related advertising to take on Google Inc, which dominates the search market with a share significantly larger than a combined Yahoo and Microsoft.

For its part, Yahoo continues to talk with Google Inc about a search advertising partnership and a deal could come as early as this week, a source familiar with the talks said on Thursday.

Microsoft emphasized it was not proposing to make a new bid to buy all of Yahoo, after recently being rebuffed, but could reconsider.

Yahoo replied later on Sunday that it continued to consider a number of strategic alternatives and was "open to pursuing any transaction which is in the best interest of our stockholders."

The company's board will "evaluate each of our alternatives, including any Microsoft proposal, consistent with its fiduciary duties, with a focus on maximizing stockholder value," Yahoo said in a statement.

It added it had confirmed with Microsoft that it was not interested in "pursuing an acquisition of all of Yahoo at this time."

ANALYSTS SPLIT

Analysts were split on the benefits of an alternative scenario to a full-fledged takeover.

"I definitely think an alternative deal is better than a full acquisition," said Toan Tran, analyst at Morningstar. "It is positive for both companies, because you are getting the benefits of a Yahoo acquisition without the negatives, namely the integration risks."

But Kim Caughey, a senior analyst at Fort Pitt Capital Group, said the market will probably send Yahoo shares higher while pushing down Microsoft shares when the market opens on Monday.

Caughey said a joint venture or minority investment with Yahoo could cause confusion about who was in charge.

"Microsoft walking away from Yahoo was a total head fake," said Caughey. "Microsoft is a terrible poker player if it thought people were going to believe that the deal was dead."

Meanwhile, Microsoft and Icahn have not held discussions about Yahoo, said another source close to the company.

In a letter to Icahn last week, Yahoo board Chairman Roy Bostock said a new board would not be in the best interests of Yahoo investors, adding Yahoo would consider any deal from any party, including Microsoft, if it offered the company full value.

Icahn, who has said he had accumulated 59 million shares and options in Yahoo, also has the support of Paulson & Co, a $30 billion hedge fund that has amassed a 3.4 percent stake in Yahoo, and other investors upset by the board's handling of negotiations with Microsoft.

Investors eye Yahoo's alternatives to Microsoft

Yahoo Inc faced growing pressure on Sunday to find an alternative strategy to Microsoft Corp's $47.5 billion takeover offer after the software maker walked away over a disagreement on price.

Yahoo shares could fall by more than 30 percent on Monday over the breakdown of talks, but that drop could be softened if Wall Street believes Yahoo Chief Executive Jerry Yang has another strategy up his sleeve, analysts said.

Yahoo is likely to push for an advertising partnership with Web search leader Google Inc, sources familiar with the matter said. A tie-up with Google, seen as a big winner from the end of Microsoft-Yahoo talks, should help boost Yahoo's operating performance in the near term.

"It's time to get a move on with Google," said Jeffrey Lindsay, analyst with Sanford C. Bernstein. "Let's hope they weren't bluffing."

Yahoo is also still considering a deal with another Internet media and advertising major, such as Time Warner Inc's AOL, people familiar with the discussions said.

But Yang and the company he helped create could face a flood of shareholder lawsuits or other actions if nothing materializes.

"There are two things that could support the stock: the potential for Microsoft to return and the potential to do a Google deal," said Clayton Moran, analyst at Stanford Group.

Moran said Yahoo shares could fall to the mid- to low-$20 range on Monday from their $28.67 close last week. Other analysts said it could slip closer to $19.18, where it closed on January 31, a day before Microsoft made its offer public.

Microsoft shares are likely to rise on Monday, with its investors relieved that Chief Executive Steve Ballmer didn't shell out billions more for Yahoo, analysts said.

Microsoft on Saturday sweetened its initial $31-per-share offer for Yahoo to $33, but then withdrew from the talks when Yang dug in for a price of $37.

SHAREHOLDER CHALLENGE

While some Yahoo investors hoped it could wrest a price closer to $35 per share from Microsoft, a dissident shareholder said he would challenge Yang and the board over the collapse of talks.

"Shareholders didn't even get a chance to vote on the deal, but the board negotiated on our behalf and not in good faith," Eric Jackson, who leads a group of investors who collectively own 2 million Yahoo shares, told Reuters.

He said he would urge shareholders to withhold votes from the company's directors this year.

Yahoo officials were not immediately available to comment.

Bernstein's Lindsay estimates Yahoo could be worth up to $35 per share with a Google deal, and even $37 with more job cuts, but that drops to $25 per share if no partnerships are in the offing.

Yahoo has conducted tests with Google to outsource some of its search listings to its arch-rival. It has also held talks in tandem with AOL and Rupert Murdoch's News Corp.

A source familiar with the matter said on Sunday that the News Corp talks had cooled in recent weeks.

"It increasingly appears like Yahoo will pursue a Google search partnership," said Moran, who said he still favored a Microsoft buyout. "Given Google's position (in the market), a partnership with them cedes control and limits the long-term value creation for Yahoo."

BALLMER'S WARNING

Ballmer portrayed Yahoo's options as particularly stark in a letter to Yang detailing his reasons for pulling back, and suggested any Google tie-up would preclude a Microsoft deal.

Microsoft and Google are increasingly competing on the same turf, such as Web-based applications, email and messaging. The proposed Yahoo purchase was meant to create a fiercer rival to Google and challenge its hold on Internet advertising.

"The real winner in all of this seems to be Google," said Canaccord Adams analyst Colin Gillis. "There's going to be no powerful number two" in the Web market, he said.

Gillis rated Yahoo a "buy" with a $35 price target before the deal talks with Microsoft collapsed. "We were very clear that was not based on fundamentals," he said.

Ballmer also warned Yahoo that it would give up its relationship with advertisers by coordinating with Google and could lose some of its best engineering talent.

Some analysts disputed that idea, saying Yahoo's operating results would certainly benefit from a Google partnership.

Other Google partners, including IAC/Inter ActiveCorp's Ask.com, have structured deals that keep them in control of their advertiser ties, Bernstein's Lindsay said.