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Yahoo Could Nix AOL Plan, Gets Help Against Icahn

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Source: Reuters
While perennial combatants Yahoo and Microsoft are each showing interest in purchasing Time Warner's AOL unit, Yahoo may be able to bring other options to bear to expand its business while averting a bidding war.

Yahoo's (NASDAQ: YHOO) management also received a vote of confidence today from a major shareholder, a move that could help the Web portal thwart attempts to oust its leaders during its upcoming shareholder meeting.

The company, which is seeking to shape an independent growth strategy after rebuffing Microsoft's bid to take it over, has been discussing the terms of a potential deal to buy AOL. In such a transaction, Time Warner (NYSE: TWX) could take a minority stake in the combined company, sources have said.

But if Microsoft (NASDAQ: MSFT) also steps in to buy AOL, Yahoo could avoid getting drawn into a bidding war by renewing talks to buy News Corp.'s Web properties, a person with knowledge of the plans said on Thursday.

The source said Yahoo has kept in contact with News Corp. (NYSE: NWS) since discussions earlier this year.

However, discussions with Time Warner about AOL appear further along. Additionally, News Corp. chief Rupert Murdoch said just last week that a deal between his company -- which owns the popular MySpace social networking site -- and Yahoo was "very unlikely."

Microsoft has also been discussing a potential AOL deal with Time Warner, another source said earlier this week.

Any deal between Yahoo and AOL was unlikely to happen before Yahoo's Aug. 1 annual shareholders meeting, the first source said.

Such a deal would be one part of Yahoo's plans to grow as an independent company -- plans that include a previously announced search ad tie-up with Google (NASDAQ: GOOG) and a potential sale of Yahoo's Asian assets, the source said.

Yahoo said in a public filing on Thursday it was seeking ways to "unlock the value of our Asian assets" -- holdings primarily in Japan and China worth around $9 per Yahoo share.

Yahoo is also sharing various pieces of its alternative strategy with shareholders ahead of Aug. 1, as it tries to convince them the company can survive without ceding control to Microsoft, two people familiar with the matter said.

Shareholders will have to decide on Aug. 1 whether they want to retain Yahoo's current board or vote in a rival slate nominated by billionaire investor Carl Icahn, who owns nearly 5 percent of the company.

Shareholder support

But Icahn's efforts were dealt a blow today when Yahoo's second-largest institutional shareholder, Legg Mason Capital Management, said it would back the company's board.

Legg, which disclosed it owns 60.7 million shares of Yahoo, or 4.4 percent of outstanding shares, urged Yahoo and Icahn to settle their differences ahead of Yahoo's shareholders meeting.

The firm's portfolio manager, Bill Miller, told Reuters last week Icahn would have more support if he promised not to sell Yahoo below $33 per share. He also urged Microsoft to make its offer public.

[cob:Special_Report]"If Microsoft wants to acquire Yahoo, it can make the terms and conditions of its offer public," Legg said in a statement. "If Yahoo shareholders support it, I am confident the board of Yahoo will accept it."

Legg backed Yahoo's actions since Microsoft made its $47.5 billion offer to buy Yahoo public earlier this year.

"We believe the current board acted with care and diligence when evaluating Microsoft's offers," Legg Mason said in a statement. "We believe the board is independent and focused on value creation for long-term shareholders."

Robert Hagstrom, a portfolio manager at Legg Mason, told Reuters last week his firm prefers a full acquisition of Yahoo by Microsoft for $33 a share. Other shareholders, too, have said they prefer a full acquisition rather than a partial deal that breaks up the Internet company.

Microsoft and Icahn recently teamed up to propose a deal that would involve Yahoo selling its search business to the software company, and handing over the remainder to Icahn.

The Microsoft-Icahn proposal is a sweetened version of a partial deal Microsoft had earlier offered Yahoo, after withdrawing its $47.5 billion offer to buy the whole company.

Yahoo has said it is willing to sell itself to Microsoft for $33 a share, but Microsoft said it is no longer interested in a full acquisition.

Shares of Yahoo edged down 4 cents to close at $22.44 on NASDAQ on Thursday, while Microsoft shares rose 26 cents, or nearly 1 percent, to close at $27.52. The software colossus posted fourth-quarter and full-year financial results after the market close.

Officials from Yahoo, Time Warner and News Corp. were not immediately available or declined to comment.