Finally some accountability...

 

Yahoo Inc. co-founder and Chief Executive Jerry Yang will step down after the company finds a replacement, closing a tumultuous and short tenure during which Yahoo rejected an offer from Microsoft Corp.'s to buy it.

Associated Press

Yahoo CEO Jerry Yang ponders a question during a talk at the Web 2.0 Summit in San Francisco Nov. 5.

Yahoo Chairman Roy Bostock and Mr. Yang, who will stay on as a senior executive and board member, have been discussing for weeks the possibility the CEO might step aside, said people familiar with the matter. His impending exit leaves much unresolved for the Internet company, which has been fighting a battle to remain independent for months. The move could pave the way for Yahoo to complete a deal with Microsoft.

For his role in those talks, Mr. Yang has been taking a beating from investors for months as concerns from inside and outside the company that he wasn't the right person to help Yahoo make painful strategic choices continued to mount. Activist investor Carl Icahn said he would replace Mr. Yang as CEO if his proxy campaign succeeded. After Yahoo agreed to a truce with Mr. Icahn, allowing him to join the board, shareholder resentment lingered. Mr. Yang received the support of only 66% of shareholder votes cast at the company's recent annual meeting. He stayed on, arguing that he was the best person to help Yahoo turn itself around.

That became increasingly difficult as the board was unwilling to abandon the notion that a deal with Microsoft could yet be struck, said people familiar with the matter. And while Mr. Yang is not opposed to a deal, and recently said publicly that he thought Microsoft should try to buy Yahoo, his relationship with Microsoft has been strained by months of tense negotiations.

A person familiar with Microsoft Chief Executive Steve Ballmer's thinking said that the Microsoft chief is still interested in buying Yahoo's search business, which could help the software company with the critical task of ratcheting up its market share against Google Inc. But Mr. Ballmer is in no rush, this person said, and will likely wait until a new Yahoo chief executive is named before making any new entreaty.

The current economic turmoil might strengthen Microsoft's hand because Yahoo is dependent on advertising revenue, which has fallen. Microsoft has a broader range of businesses with which to weather rough economic waters. News that the board had begun a search to replace Mr. Yang was first reported Monday evening by AllThingsD, a Web site owned by Dow Jones & Co., publisher of The Wall Street Journal.

In recent weeks, Yahoo's plummeting stock price has continued to send alarm bells to the board, said people familiar with the matter. On Monday, Yahoo shares closed at $10.63 a share, down 1.76% on the Nasdaq Stock Market. However, in after-hours trading, the shares jumped 4.42%. Microsoft had offered $31 a share on Jan. 31, which Yahoo's board rejected.

Meanwhile, Mr. Yang's strategy of keeping Yahoo independent has faced a number of new roadblocks. Google abandoned a pending search deal with the company amid regulatory concerns. And talks over a possible merger with Time Warner Inc.'s AOL -- which are ongoing -- failed to progress.

Yahoo's board members have chosen executive-search firm Heidrick & Struggles International Inc. to find Mr. Yang's successor. The board is likely to consider Susan Decker, Yahoo's president, who is well-liked by some board members, said people familiar with the matter.

But some large investors could resist the choice, as they have previously expressed concerns that Ms. Decker, who was formerly Yahoo's chief financial officer, lacks the management experience for the job.

Microsoft's Mr. Ballmer has repeatedly said in public in recent weeks that his company has no interest in acquiring Yahoo and that the two aren't engaged in talks about a transaction. However, Mr. Ballmer did signal at an event last month that a more narrow deal between the companies, perhaps involving a Microsoft acquisition of Yahoo's search engine, could make sense.

People familiar with Microsoft's thinking have said support remains within the company for a Yahoo search deal, but that other factors, such as the souring economy and an expected change in the ranks of antitrust officials with the new presidential administration next year, could affect the timing of any Microsoft actions. If Microsoft decides to make a new run for all or part of the company, Mr. Yang's departure clears one hurdle. Microsoft executives viewed him as the main stumbling block to getting a deal done.

Following Microsoft's initial bid for Yahoo, Mr. Yang responded a month later with a note to his shareholders that said Microsoft's bid "substantially undervalues" the company. With that he let Microsoft to stew as the software giant tried to entice him into talks.

When those talks started in earnest -- weeks later in mid-April -- Mr. Yang played his cards close to the vest, telling Mr. Ballmer and other Microsoft executives at a meeting in Portland, Ore., that he wasn't authorized to cut a deal.

In following weeks, Yahoo's board authorized Mr. Yang to sell the company, and in early May, he and his co-founder David Filo met Mr. Ballmer in Seattle to discuss the details. Soon after Mr. Yang returned to California late the same day, Mr. Ballmer called to say he was dropping Microsoft's offer. People familiar with the matter say Mr. Yang was stunned.

As the two retreated to their respective corners this summer, Mr. Ballmer largely blamed Yahoo and Mr. Yang for the companies' failure to reach an agreement, say people familiar with his thinking.

A spokesman for Microsoft said the company had no comment on the change in Mr. Yang's role.

—Robert A. Guth, Nick Wingfield, Joann S. Lublin and Matthew Karnitschnig contributed to this article.