Microsoft In Secret Talks With Yahoo To Acquire Search Engine Unit For $20 Billion

November 30, 2008 7:17 a.m. EST

New York, NY (AHN) - Microsoft (MSFT) may be in talks with Yahoo, Inc (YHOO) to acquire the later's online search engine business for around $20 billion, a report said on Sunday.

The news was first reported by the U.K.-based Sunday Times, citing un-named sources, that the Sunnyvale, Calif., Internet-services giant, is not likely to takeover Yahoo completely.

"It is thought that Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, have been lined up to lead the new management team," the newspaper said.

It added, "Senior directors at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed."

The report follows two weeks after Jerry Yang, Yahoo's co-founder, stepping down as the company's chief executive officer.

The potential price of the online search business by Microsoft is more than Yahoo's investor has proposed last month.

Private equity fund Mithras Capital, which holds 1.9 million shares or around 0.14 percent of Yahoo's total stake, had proposed Microsoft could purchase the unit for a price at $10.3 billion or $22 a share.

The software giant had decided not to proceed with a higher bid after Yahoo rebuffed Microsoft's $9 billion offer to purchase its search business in July.

"The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business," the newspaper reported.

It added, "It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services."

In the month of May, Microsoft had made a complete takeover offer of $47.5 billion, but Yahoo declined the bid. Microsoft's CEO Steve Ballmer, has consistently dismissed the possibility of making another deal with Yahoo.

Shares of Yahoo had jumped and closed higher on Friday by 93 cents or 8.79 percent to $11.51. The stock has traded between $8.94 and $30.25 in the last 52-week period on NASDAQ market.