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."

Shareholders try to kill Yahoo severance plan: report

A Yahoo employee severance plan meant to protect workers after a merger with Microsoft should be scrapped, according to a shareholder lawsuit against Yahoo and its directors, The New York Times reported on Tuesday.

Both the plaintiffs and billionaire investor Carl Icahn, who is waging a battle for control of the Yahoo board, have criticized the severance plan as costly and said it was an obstacle to any merger, the Times said.

The plaintiffs, two Detroit pensions, said if Icahn wins control of the board, Yahoo could be faced with up to $2.4 billion in potential severance payouts under the plan, according to the Times, the same amount that the plan could cost Microsoft.

A spokesman for Yahoo said that figure was an estimate based on many assumptions, including that all Yahoo employees would be fired or otherwise be able to claim severance benefits, the Times reported.

The plan offers enhanced benefits, cash and accelerated vesting of stock options, to any Yahoo employees who are fired or leave because their roles are diminished after a merger or change in control of the company, it said.

Lawyers representing the pension plans are reported to have asked a judge in Delaware to hold a trial to determine the fate of the plan ahead of the company's August 1 shareholder meeting.

Legal experts told the paper a trial could shine a light on Yahoo's talks with Microsoft and affect the outcome of the proxy fight.

Yahoo has said the suit is without merit, the Times said, which said Icahn did not return a call seeking comment.

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.

Microsoft, Yahoo could reach weekend deal: sources

Microsoft Corp and Yahoo Inc are making last-minute efforts to seal a deal before Microsoft takes its Yahoo bid hostile or abandons it altogether, sources familiar with the matter said on Friday.

Microsoft may raise its offer, now worth $42.2 billion, by a few dollars per share from an initial $31 per share to complete a deal as soon as this weekend, a person familiar with Microsoft's thinking said.

But talks are at a "sensitive stage" and a deal is not certain, sources familiar with the situation said.

Investors bet an agreement was likely, sending Yahoo shares up 7 percent to $28.67 on the first news of significant contact between the sides since Microsoft's deadline for its initial offer expired last Saturday.

"My sense is Microsoft is considering raising their price to the mid-$30s," said a San Francisco-based portfolio manager who owns both Yahoo and Microsoft shares, but would not be identified due to a company policy regarding shares that are actively traded.

Yahoo had previously refused to enter formal negotiations with Microsoft, saying the initial price it made public in February did not properly value Yahoo's search and display advertising technology, or its overseas holdings.

Every dollar added to the per-share price amounts to about $1.4 billion extra for the total deal at current prices, and Microsoft shareholders have questioned how much higher the company should go.

"If it's $35 or less, I think it's fine," said the portfolio manager, whose company owned 21.2 million shares of Microsoft and 1.93 million Yahoo shares as of the end of December.

NO QUICK EMBRACE

A deal could give Microsoft a stronger foothold in its battle with Internet search leader Google Inc, which is rapidly expanding into the software maker's own turf with new Web-based applications.

Microsoft Chief Executive Steve Ballmer indicated on Thursday he might sweeten the bid after weeks of saying publicly that his offer was fair as it stood.

"I know exactly what I think Yahoo is worth to me, exactly," Ballmer said at a meeting with Microsoft employees. "I won't go a dime above, and I will go to what I think it's worth if that gets the deal done."

Yahoo executives have repeatedly said the company was not averse to a deal with Microsoft at a higher price.

But in a sign of its reluctance, Yahoo has courted a possible deal with Time Warner Inc's AOL division and a search advertising partnership with Google.

Yahoo is still in talks on an alternative to the Microsoft bid, sources familiar with the matter said on Friday.

For its part, Microsoft has made clear it will not wait much longer. Ballmer said on Thursday that walking away was one of three options, along with striking a friendly deal or launching a hostile bid, and to expect an announcement shortly.

Microsoft shares fell 0.5 percent to close at $29.24. Yahoo shares closed at $28.67, up nearly 7 percent on the day.

Yahoo seeks AOL tie: Microsoft talks to News Corp

Yahoo Inc, which was widely believed to be running out of alternatives to accepting Microsoft Corp's takeover offer, has become a target of two warring camps of technology giants and their media allies, sources said on Wednesday.

News Corp is considering joining Microsoft in a bid for Yahoo which would bring in News Corp's MySpace online social hangout and create a more formidable rival to Internet juggernaut Google Inc, newspaper reports said.

But Yahoo, which announced earlier on Wednesday it plans to test Google search ads alongside Yahoo Web search services, is closing in on a deal with Time Warner to merge with its AOL unit, several sources told Reuters.

The game of musical chairs among the titans of the Internet follows two years of on-again, off-again talks to strike industry-reshaping mergers among different configurations of the same players.

Google, unaccustomed to being back footed by its rivals, is considered a secondary player unlikely to enter the merger bidding as its growing dominance in Web search and search-based advertising could be blocked by competition regulators.

"The whole situation seems to be very unstable," said Sanford C. Bernstein analyst Jeffrey Lindsay, adding that Microsoft's bid for Yahoo precipitated a cascade of offers.

"There are so many pent-up moves for consolidation but it's hard to say what moves will be successful," Lindsay said.

Reports were sketchy on exactly how a Microsoft deal with News Corp might be structured, making Wall Street analysts reluctant to speculate on which combination might prove the superior offer.

But several agreed that Yahoo has regained some of the negotiating momentum it appeared to have lost with Microsoft.

Yahoo's talks with Time Warner are getting near to a deal that would fold AOL's business, excluding its legacy dial-up Internet access operations, into a combined Yahoo company, a person familiar with the talks said. Such a deal would value AOL at $10 billion, the person said.

Yahoo would receive cash from Time Warner in exchange for 20 percent of a combined Yahoo-AOL, the source said. Other sources confirmed the outlines of the talks but provided no further details.

The Wall Street Journal cited sources saying Yahoo would use the Time Warner cash and other funds to buy back several billion dollars worth of Yahoo stock at a price somewhere in the middle of the range between $30 and $40 a share.

The New York Times reported that Microsoft had begun talks to bring News Corp in on its effort to acquire Yahoo.

This combination would bring together three of the biggest Web site publishers on the Internet: Yahoo, Microsoft's MSN and News Corp's MySpace, creating a formidable counterweight to Web pacesetter Google, but also drawing antitrust scrutiny.

Yahoo said it was beginning a two-week test on whether it can use Google to sell ads alongside Yahoo Web search services. The initial test is small, covering only 3 percent of Web searches performed on Yahoo, the companies said.

But sources familiar with the talks said the tests could lead Yahoo to a broader deal in which it lets Google sell search advertising for it in order for Yahoo to concentrate on online brand ads. Lindsay has estimated that, by turning over search ad sales to Google, Yahoo could boost its revenue by 10 percent and free up money to invest in stronger businesses.

Microsoft General Counsel Brad Smith said Yahoo and Google would consolidate more than 90 percent of the search ad market in Google's hands. Herb Kohl, the Democratic head of the U.S. Senate antitrust subcommittee, chimed in to say he was watching Yahoo's deal closely to ensure it does not harm competition.

Microsoft had threatened on Saturday to launch a hostile bid for Yahoo and could lower its offer in about three weeks if it does not get a deal from Yahoo, a Web pioneer which argues it is worth more than Microsoft's $42 billion bid.

Any of the combinations, or another yet to be determined, would fundamentally change the Web. Major players have been circling each other as the first decade of growth in the Internet market has begun to slow dramatically.

The talks with News Corp, which previously had discussed working with Yahoo as a counter to Microsoft's unsolicited bid, are at a sensitive stage, the New York Times said. The Wall Street Journal called those talks "serious".

Microsoft, News Corp, Time Warner, Google and Yahoo all declined to comment on the talks.

Terms of the proposed Microsoft-News Corp union are still being worked out, the New York Times said. News Corp would likely contribute its Fox Interactive Media unit, which owns MySpace, and possibly cash to a partnership with Microsoft as part of a Yahoo acquisition, the newspaper said.