Carl Icahn Seeks a Bidding War

Although Carl Icahn's proxy contest at Yahoo! Inc. is his way of pushing for a bidding war between Microsoft Inc. and Google Inc. for the Web portal, search engine and news aggregator, analysts at Stifel, Nicolaus & Co. are wary of antitrust issues.

In a report released Monday entitled "Microgoohoo Tango: Gov't Would Scrutinize Deal But Microhoo Easier than Goohoo," research firm Stifel, Nicolaus & Co. argues that a Yahoo-Microsoft combination would be easier to achieve regulatory approval in Washington than a Google-Yahoo hookup, but both would have problems.

"While a Google deal could be structured to gain Department of Justice approval, we think generally that potential deal structures involving Microsoft would likely be easier for the government to swallow," according to the report.

The report adds: "Any deal between Yahoo and either Microsoft or Google would be subject to extensive government review and could be subject to a variety of headaches, stretching from delays to conditions to outright rejection."

The regulatory team at Stifel Nicolaus adds in their report that they believe the government would not permit Google to buy Yahoo. But they add that a Google-Yahoo alliance and outsourcing deal could be structured in a way that might be approved by regulators in Washington. "From an antitrust perspective, the key issue for a Google outsourcing deal, we believe, is whether the deal would be structured in such a way that Yahoo maintains the ability and incentive to continue to develop its own search/advertising product," the report adds.

Last week, Icahn launched a proxy contest to replace 10 directors on Yahoo!'s board. If Icahn achieves his goal, expect him to bring in executives that are more amenable to a major deal. Whether it involves Microsoft buying Yahoo! or Yahoo! forming a larger partnerhsip with Google, only time will tell. -- Ron Orol