Yahoo and Microsoft Begin Talks (MSFT, YHOO)

Microsoft Corporation (NDAQ: MSFT) executives met with Yahoo Inc. (NDAQ: YHOO) today to discuss the proposed takeover offer, according to people familiar with the matter. This would be the first such meeting since Microsoft made its unsolicited buyout offer was made and subsequently rejected. The meeting was not so much a negotiation as an attempt by Microsoft to outline its vision for Yahoo and attempt to smooth over the troubled relations between the two technology giants. So, will this talk help increase the likelihood of a Yahoo acquisition or is it still far fetched?

The talks reportedly covered the impact of such a takeover and were described as mostly a listening session for Yahoo with no financial advisors present. Microsoft reportedly indicated that it wanted very little disruption of Yahoo’s business, but believed the two companies could compete better against rival Google (NDAQ: GOOG) as one unit. Clearly, the combined company would prove to be a big competitor in not only paid search but also Google’s newest venture in display advertising. In fact, the threat was so large that Google was reportedly considering taking action to break up the bid.

Yahoo has held similar meetings with other potential suitors, including Time Warner (NYSE: TWX) and News Corp (NYSE: NWS), in order to thwart Microsoft’s takeover attempt. But Microsoft has been sticking to its guns and rumored to even be considering nominating its own slate of directors to Yahoo’s board to help push the deal through. Meanwhile, the value of Microsoft’s offer is quickly declining, as their shares have dropped nearly 12%, but the technology giant has refused to raise the offer until it gets a good look at Yahoo’s books. It is likely that Microsoft is looking for revenues in paid search and display advertising most closely in order to determine how much it could accredit its own earnings.

In the end, there is no word from either company about the success of the meeting. As of now, Yahoo’s rejection of Microsoft’s $44.6 billion bid stands and there is no word that prominent executives even showed up at the meetings. Investors and analysts will have to wait to see if there is any future progress made by these two companies towards making a deal become reality. However, YHOO and MSFT are definitely two stocks worth watching in the meantime!

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