By Yi-Wyn Yen

At the Web 2.0 Summit two weeks ago, Yahoo CEO Jerry Yang was asked if he was the right guy to lead the battered Internet portal. Yang dodged the question by defending his passion for the company he co-founded 13 years ago. “I didn’t make the decision of being the CEO lightly,” he said. “I wanted to make a change at Yahoo that I believe I can make….That’s a dream that I felt I could achieve by being CEO and that’s still the dream today.”

That dream came to an end Monday when Yahoo announced that Yang, 40, will step down as CEO and return to his former role as “Chief Yahoo.” The company’s board said it has hired headhunter Heidrick & Struggles to find a replacement.

Yang has come under fire for his inability to turnaround the company in his past 17 months as CEO. During his short tenure, Yahoo (YHOO) has had two major rounds of layoffs and has seen its search market share shrink significantly while a series of reorganizations led to the departure of senior executives. Yang was heavily criticized by Wall Street and shareholders for failing to reach an agreement to sell the company to Microsoft (MSFT). But the final straw for Yang came when Google (GOOG) pulled out of a controversial ad agreement earlier this month that would have boosted Yahoo’s revenues by hundreds of millions of dollars.

“When the board asked me to become CEO and lead the transformation of the company, I did so because it was important to re-envision the business for a different era to drive more effective growth,” said Yang in a statement. “Having set Yahoo! on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader. I will continue to focus on global strategy and to do everything I can to help Yahoo realize its full potential and enhance its leading culture of technology and product excellence and innovation.”

When Yang took over, he was widely viewed as the right choice to replace Terry Semel, the previous CEO from Hollywood who spent six years molding Yahoo into a media company. Yang promised change in the first 100 days as CEO, declaring there would be “no sacred cows.” But 100 days came and went. So did the next 400 days. Frustrated investors have seen Yahoo’s shares drop 62% in value since Yang took over in mid-June 2007. While Semel never had Yang’s geek cred, he did manage to drive Yahoo’s stock price up to an eight-year peak of $43.21 in January 2006. Yahoo’s shares closed at $10.63 on Monday.

Yang has admitted his legacy may forever linked to the debacle with the Microsoft takeover. Yahoo’s board and management team quickly turned down Microsoft’s original offer to acquire Yahoo for $31-a-share in February. The two parties spent six months trying to negotiate a deal. “As a CEO, my job is to find the right path for Yahoo,” Yang said at the Web 2.0 conference. Not getting the deal done “is something that I’ll be labeled with.”

By Scott Moritz

U.S. regulators on Monday charged Dallas Maverick owner and outspoken blogger Mark Cuban with using confidential information in 2004 to sell his stake in Mamma.com, a Montreal search engine now known as Copernic (CNIC). His sale of all 600,000 shares helped Cuban avoid a 10% dive in the stock, or about $750,000 in losses, the government contends.

The Securities and Exchange Commission filed a civil lawsuit against Cuban on Monday. No criminal charges were filed.

Cuban, the biggest shareholder in Mamma.com, was allegedly angered by plans for a private sale of discounted Mamma.com stock, according to the lawsuit filed in U.S. District Court for the Northern District of Texas.

Mamma’s CEO had contacted Cuban to see if he was interested in participating in the so-called PIPE, or private investment in public equity, according to the SEC complaint. Selling the stock at a discount effectively dilutes the stakes held by existing shareholders. Cuban allegedly responded: ”Well, now I’m screwed. I can’t sell,” according to information provided by the Mamma CEO to regulators.

But sell he did, according to the SEC. One minute after hearing the full details of the private investment offer for Mamma.com shares, Cuban allegedly called his Dallas broker and said: “Sell what you can tonight and just get me out the next day.”

The SEC wants Cuban to pay back the $750,000 he avoided in losses after Mamma.com’s shares fell as well as a potential fine of $2.25 million.

Cuban issued a statement Monday saying the charges had no merit. “The government’s claims are false and they will be proven to be so,” he said.

Cuban’s net worth has been estimated to be $2.8 billion. His big jackpot came in 1999 when he sold Broadcast.com to Yahoo (YHOO) for nearly $6 billion, one of the largest cash-outs of the Internet boom.

As the owner of the Mavericks and Internet soapbox Blog Maverick, Cuban has displayed a fiery temperament at times. After a few shouting matches with Mavericks head coach Avery Johnson earlier this year, Cuban fired Johnson, the most successful coach in franchise history, at the end of the NBA season in April.

If skirting securities laws to avoid losing a relatively insignificant amount of money sounds strange, it isn’t, says Scott Friestad, deputy director of enforcement for the SEC.

“It’s not uncommon that the amount of the transaction is not correlated to a person’s financial wherewithal,” said Friestad. “We’ve seen sales worth $15,000 by people with $1 million-a-year salaries.”

By Yi-Wyn Yen

SAN FRANCISCO – In the past ten months, Yahoo CEO Jerry Yang has faced a hostile takeover attempt by Microsoft, shareholder lawsuits, a proxy fight led by Carl Icahn and, on Wednesday, watched a much-needed partnership with Google (GOOG) go up in flames.  Yet the embattled Yahoo chief says he has no regrets that he took on the job.

“I didn’t make the decision of being the CEO lightly,” Yang told a packed crowd of 800 at the Web 2.0 Summit late Wednesday afternoon, hours after Google announced it was pulling out of an ad partnership with Yahoo to avoid a federal antitrust suit.

“I wanted to make a change at Yahoo that I believe I can make,” he said. “That’s a dream that I felt I could achieve by being CEO, and that’s still the dream today. And that’s something that gets lost underneath all these external issues.”

He added, “I don’t regret any minute of it. It might not be the most fun thing, but I feel like I only know how to operate by caring and being passionate about Yahoo.  I just feel that’s the reason that I’m here.”

Yang appeared relaxed while facing tough questions from Web 2.0 impresario John Battelle, who conducted the 45-minute interview at San Francisco’s Palace Hotel. Dressed in a purple-checkered dress shirt, Yang smiled and joked with Battelle who asked him to justify his job and why he rejected Microsoft’s offer to buy the company.

“What happened?” Battelle asked.

“Which part?” Yang said with a smile.

“Thirty-three dollars a share, Jerry. What happened?”

Since Microsoft (MSFT) and Yahoo (YHOO) ended talks in June, Yang has said that the company was willing to sell to Microsoft for the right price. He reiterated his position that he’s still willing to sell the entire company or Yahoo’s search business at the Web 2.0 Summit.

Not convinced, Battelle blamed Yang for failing to get the deal done. “You didn’t want it to happen,” Battelle said.

“I don’t have an ego,” Yang replied. “At the end of the day, we believed the deal was going to be done, and that a deal was not that far apart and they walked away…I know [the failure of the deal] is something that I’ll be labeled with.”

It was the failure of that other deal that seemed to stun Yang. After four months of negotiating with the feds, Google on Wednesday pulled out of a search ad deal that would have generated hundreds of millions of dollars in additional cash flow for Yahoo.

Yang mentioned several times that he was “disappointed” by Google’s decision. “We were working with the Department of Justice to get this deal done,” he said. “We also felt that Google clearly did not want to stay in the deal, and we were disappointed with that.”

Yang had no answer for why Google withdrew. He said, “You’d have to ask them because we are certainly disappointed.”

In a blog post, Google’s chief legal officer David Drummond referred to the deal as too “risky.” The feds threatened to sue Google and Yahoo if they went through with the ad agreement that would allow Yahoo to run some Google search ads on Yahoo’s web properties. The Justice Department believed combining the No. 1 and No. 2 search engines was anticompetitive. Yahoo signaled it was willing to go to court over the deal.

Said Yang, “I really thought the government in this case does not understand this industry. Their thinking is too narrow. I clearly don’t agree with their point of view.”

Yang stressed that the company had “no news” with regards to reviving talks with Microsoft. He also stayed mum on reported talks to buy AOL, which is owned by Fortune’s parent company Time Warner (TWX).

“Are you buying AOL,” Battelle pressed.

Yang laughed and then smiled. “I can’t talk about that. If I tell you, I’d have to kill you.”

Said Battelle, “I think I’ll take the bullet for this audience.”

By Yi-Wyn Yen

The implosion of Yahoo’s ad partnership with Google may or may not lure Microsoft back to bid on Yahoo, but one thing is clear: Making a deal with Yahoo will be a lot less expensive that it was six months ago.

Yahoo (YHOO) is back on the market after Google (GOOG) on Wednesday bailed on the controversial search ad agreement. Investors signaled their approval of the breakup by sending Yahoo’s shares up 5% to $14.02 in mid-day trading.

Microsoft (MSFT) had no comment on the possibility of opening up renegotiations with Yahoo. But the software giant was pleased with the Justice Department’s decision to nix the Google-Yahoo deal, which would have allowed Yahoo to run some of Google’s search ads on its Web properties.

“The Department of Justice’s finding is significant for advertisers, publishers and consumers, who voiced overwhelming concern about this illegal deal to law enforcement and policymakers,” said Brad Smith, Microsoft’s general counsel in a statement.

Microsoft may have won a victory over Google, its bitter rival, but the real loser here is Yahoo. Wrote Jefferies analyst Youssef Squali in a client note, “In our view the GOOG withdrawal is another black eye for [Yahoo CEO] Jerry Yang and Co.”

Analysts say they expect Yahoo’s best option is to go back to Microsoft for a search deal. Summed up Jefferies’ Squali, “YHOO is left with 3 options: 1) go it alone, 2) merge with AOL, or 3) do a deal with Microsoft.”

“Option #1 is not optimal,” he continued, “as shareholders would need to ride out the current recession to get paid. Also having Icahn on the board should make status quo difficult. Option #2 is possible but not to our liking since YHOO would double-down on Display (the weaker segment) with no material benefit to search. Option #3 is the most likely,in our view.”

Google’s ditching of the deal is a humiliating blow for Yahoo. Google announced in a company blog post – a blog post! – that battling the feds in court to save the Yahoo deal was too risky. Three minutes after the Google blog was published, Yahoo released a statement that the company was “disappointed that Google has elected to withdraw from the agreement rather than defend it in court.”

The Justice Department notified Google and Yahoo Wednesday that it would sue both companies if the pair went through with the ad agreement.  Wrote Google’s chief legal officer David Drummond in the blog post, “Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn’t have been in the long-term interests of Google or our users.”

Yahoo scrambled to keep the deal afloat. Earlier this week, Yahoo proposed a drastically-scaled version to Google and the government. Yahoo offered to reduce the terms from ten years to two years and only run a quarter of Google’s search ads on Yahoo’s sites.

Analyst Jeffrey Lindsay with Bernstein Research argues that Yahoo was desperate to keep the Google deal going to stay independent. He also says that without the extra cash generated from Google, Yahoo’s attempts to buy Time Warner’s AOL (TWX) business outright is unlikely. Reports have suggested that Time Warner, Fortune’s parent company, would be willing to sell AOL for $6 billion to $8 billion. Lindsay says that at most, Yahoo can only pay between $4 billion to $4.5 billion without diluting its own shares. “Without the Google deal, Yahoo can’t afford to buy AOL,” Lindsay said.

Yahoo brushes off claims that the Google deal is a major loss to the company. Yahoo had originally said that it could make as much as $800 million in annual revenue from the deal. But in its release Wednesday, the company argues that the deal was only “incremental” to its turnaround strategy. “The fundamental building blocks of a stronger Yahoo in both sponsored and algorithmic search were put in place independent of the agreement,” the company said in its statement.

Yahoo struck the search deal with Google four months ago after it ended talks with Microsoft. The move was widely seen as a way for Yahoo to appease shareholders, who were upset that Yahoo turned down Microsoft’s $33-per-share bid. Microsoft had also offered to buy just Yahoo’s search business for a reported $2 billion in June.

Microsoft is still struggling to make a dent with Google’s dominance in paid search advertising. Analysts say that’s all the more reason for Microsoft to come back. “We can’t see why Microsoft wants Yahoo any less than it did nearly a year ago,” Bernstein’s Lindsay said. “All the same reasons still hold true for why Microsoft needs Yahoo. And now they can offer considerably less.”

By Scott Moritz

Yahoo (YHOO) moves back to the deal market as its controversial advertising partnership with Google (GOOG) is now dead.

As Fortune’s Legal Pad blogger Roger Parloff outlined last month, the legal footing was never very solid as the No.1 and No.2 Internet advertisers explored plans to work together on search advertising efforts.

The plan was first introduced in June as Yahoo was trying to fend off an unsolicited takeover bid from Microsoft (MSFT). Yahoo stubbornly resisted Microsoft’s early offers, including a $33-a-share bid in May. Microsoft then walked away and in July, activist investors like Carl Icahn started pushing for a shakeup of the Yahoo board and a more deal-friendly line up.

Yahoo shares, which had fallen to a five-year low of $11.25 last month, surge up 9% on Wednesday after news that the Google partnership was killed.

Investors apparently like Yahoo’s options a lot better without the antitrust battle that seemed to be looming with its Google ad plan. Microsoft and Time Warner’s (TWX) AOL unit – Time Warner is the parent of Fortune and CNNMoney – are among the potential deal partners.

On a conference call with analysts, Time Warner executives said that the news was positive for AOL. “The opportunity remains open for this business to rebuild itself,” the executives said.

By Yi-Wyn Yen

Some new bad news for Yahoo. Ten days after the troubled web portal announced it will lay off 1,500 employees, the Wall Street Journal reported Thursday that Yahoo’s deal with Google is on shaky ground.

The Journal said that both Google (GOOG) and Yahoo (YHOO) may walk away from the ad search agreement next week because the Justice Department has been moving toward a suit to block the deal. That would be a big blow to Yahoo, which was banking on making as much as $800 million in annual revenues by outsourcing some search ads on its web properties to Google.

In a statement, Yahoo representative Adam Grossberg said the discussions with the feds are “on going.”

Google representative Adam Kovacevich said in a statement that the company is “continuing to have cooperative discussions with the Department of Justice about this arrangement, and agreed to a brief delay in implementing the agreement while those discussions continue.”

Confidence in the deal is waning. In mid-June, Google and Yahoo originally said they would give the feds 100 days to review the ad pact before moving forward with the agreement. But the pair have faced an uphill battle in Washington. In early August, Yahoo filed a heavily redacted version of the deal to the Securities and Exchange Commission. Then Google CEO Eric Schmidt told reporters that he planned to go ahead with the partnership in mid-October with or without approval from the Justice Department. So far, the feds have yet to give the Internet frenemies the green light.

Critics say the ad pact would give Google too much power and make search advertising less competitive. Google currently owns 62% of the U.S. search market, according to comScore’s monthly figures for September. Yahoo is second with a 20% share and has lost 20% of its search share to Google in the past 18 months.

A source familiar with Google’s thinking said no decision has been made. Some analysts have already moved on even if the feds haven’t.

On Wednesday, J.P. Morgan Internet analyst Imran Khan sent a note to clients on why Yahoo should forget about the Google deal and sell its search business to Microsoft (MSFT). Khan suggests that Yahoo can gain an additional $725 million in operating cash flow from outsourcing search to Microsoft. The software company had offered Yahoo a reported $2 billion to buy its search business after talks to acquire all of Yahoo failed.

Writes Khan, “We think that it is unlikely that the Google/Yahoo search partnership will pass DOJ review in its current form….Without its search business, Yahoo would be very clearly positioned as a content and display advertising entity, thereby clarifying and defining its purpose to advertisers and users.”

By Yi-Wyn Yen

You know it’s a bad quarter when the most encouraging news you offer is job cuts.

During Yahoo’s third quarter earnings call Tuesday, chief executive Jerry Yang made an unconvincing argument that the company is “well positioned for future growth.” Yahoo reported net sales and earnings for the third quarter that fell well below the Street’s consensus.

And Yahoo (YHOO) is bracing itself for a bleak fourth quarter. The company adjusted its year-end gross revenues estimates to reflect worsening conditions. The company projected gross revenues of $1.77 billion to $1.97 billion. And for the second straight quarter, Yahoo reduced its year-end gross revenues estimates by $175 million to $475 million. To get through the “tough environment,” Yang said the company will lay off about 1,500 employees, or 10% of its workforce, before the end of the year. Yahoo’s shares jumped 7% in after-hours trading to $12.95, likely because of the cost-cutting, said one analyst.

But it’s hard to see how Yahoo can slash its way back to greatness, or what other path it could take to get there.  Yahoo’s management has been criticized for not taking Microsoft’s offer to buy the company at $31 a share earlier this year. The stock has fallen 54% since both parties ended negotiations in mid-June. And the alternative strategy for growth Yahoo proposed, a search advertising deal with Google, is now tied up by the feds.

Investors are losing patience for new board members like Carl Icahn to find ways to boost Yahoo’s sagging stock price. Icahn could not be reached for comment on Tuesday.

Wall Street analysts grilled Yang on whether cutting employees was an acceptable alternative to a Microsoft (MSFT) deal.

Yang said that “getting Yahoo more fit” was a way to boost Yahoo’s sagging stock price. “We think that taking aggressive actions on cost structures is one of the ways to unlock shareholder value,” he explained. “By streamlining activities…we hope to come out of this stronger and more nimble.”

Analysts say they are skeptical that cost cuts and Yahoo’s reliance on APT, its new display advertising platform launched last month, will be enough for the company to weather a stormy economy.

Yahoo’s executives were vague on merger talks with AOL (which is owned by Fortune’s parent company Time Warner) and its search agreement with Google (GOOG). Yang said the company is working with the Justice Department, which is reviewing the case for antitrust concerns, to outsource some search ads to Google “as soon as possible.”

“Clearly there is going to be increased pressure on Jerry Yang to take more drastic measures to make the stock work in the short term,” said Jefferies analyst Youssef Squali. “[Carl] Icahn and his two lieutenants and other independent board members should be displeased with the turn of events.”

Yahoo reported net sales of $1.33 billion for the third quarter, which were below Street estimates of $1.37 billion. Yahoo earned 4 cents a share, below the Street consensus of 9 cents.

“The Street’s not happy. Being in a middle of an ad recession and not putting up decent numbers isn’t going to help,” said Christa Quarles, Thomas Weisel’s Internet analyst.

An economic recession spells trouble for Yahoo, the bellwether for online display advertising. The growth rate for display advertising is expected to slow down in 2009. Analysts predict that marketers will spend more on search advertising than display next year because search is considered a more accountable way to directly reach consumers.

Yahoo’s share in search is steadily declining while Google’s continues to grow. Yahoo had 20% of the U.S. search market for September and Google had 63%. Yahoo has lost 15% of its share in search from the same period a year ago, according to comScore.

Yahoo President Sue Decker said internal statistics show that Yahoo is actually faring better than comScore suggests. Yahoo made more money from search than display for the first time. The company grew its search revenue by 17% for the third quarter to $438 million while earning $435 million, a 3% increase, from selling display ads.

However Decker admitted that Yahoo’s search revenues were not enough to compensate for the decline in display advertising. Decker said display advertising started souring by mid-August.

By Yi-Wyn Yen

Microsoft needs to get its story straight.

Microsoft CEO Steve Ballmer told attendees at a tech research conference in Orlando on Thursday that a deal with Yahoo (YHOO) “makes sense for their shareholders and ours.”

But within an hour of the news, Microsoft (MSFT)  spokesman Frank Shaw issued an statement to retract Ballmer’s comments. “Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo!; there are no discussions between the companies,” Microsoft said.

Yahoo spokeswoman Kim Rubey said the company had no comment on Ballmer’s statement. Yahoo’s investors, meanwhile, are loving the idea that Microsoft is even considering returning to the negotiating table. After trading in the $11 range, Yahoo’s shares jumped 10% to $12.93 on Thursday.

By Yi-Wyn Yen

The Google-Yahoo search advertising pact will get approval from the Department of Justice in the next few weeks, but not without some serious scaling back of the deal, according to one analyst.

Thomas Weisel Partners managing director Christa Quarles expects the Justice Department to put limits on how often Yahoo will be allowed to run Google’s (GOOG) ads on Yahoo’s web properties. Yahoo’s revenue-sharing agreement gives the Internet portal flexibility on the number and the type of Google ads it can show. Quarles predicts that the Justice Department will not trust Yahoo enough to give it that much freedom.

“The DOJ will put some caps on how much Yahoo can move over to Google,” Quarles says in an interview.

Google and Yahoo (YHOO) plan to start the partnership in October. The pair gave the Justice Department 3.5 months to review the agreement for antitrust concerns after striking a deal on June 12. Any restrictions on the deal that the government wanted could either be accepted by the companies or not, in which case the feds would have to decide whether to pursue court action. The department has reportedly hired Sanford Litvak, a top litigator, to head up any case.

The agreement the companies struck allows Yahoo to use Google’s technology to display Google’s ads alongside Yahoo’s search results. The search giant will pay Yahoo a portion of the revenues it gets over four years. Yahoo will have the option to renew the deal in two straight three-year terms. Industry analysts estimate Google gives its AdSense partners 80% of search revenue, and that Yahoo will get a similar arrangement.

For the month of August, Google controlled 63% of the search traffic in the U.S and Yahoo owned 20%,  according to comScore.

Yahoo is vague about exactly how often it will turn to Google’s search-ad engine to supply results on a Yahoo page. But executives insist they plan to run Google’s ads only when Yahoo has low ad inventory, especially in “long-tail” searches such as “red roses in Birmingham, Ala.”  Yahoo says that the Google partnership can increase annual revenue by $800 million, or 11%.

Quarles argues that the feds will want to put more limits on the deal to keep Yahoo from becoming addicted to Google. “Let’s say Yahoo starts with long-tail queries. Then they start turning up the dial to include the retail segment. And then it’s, ‘Ooh, my. We can double monetization.’ There’s a very high temptation for Yahoo to shift over to Google,” Quarles says.

The ad partnership has received criticism from powerful interest groups such as the Association of National Advertisers and the World Association of Newspapers. Advertisers say they fear the combination of the top two search engines will drive up the prices they pay for search keywords. Newspaper publishers worry that the combined forces of Google and Yahoo will reduce competition and ultimately lead to less revenue and higher fees for them.

Both Google and Yahoo insist that competition will get better as the tarnished Internet portal invests the additional money to improve its search ad system.

Quarles predicts that Yahoo will make far less than the $800 million the company says it can.

That’s not good news for investors who saw a buyout from Microsoft (MSFT) as a better alternative to the Google pact. In a June note to clients, Quarles wrote that Yahoo’s revenue opportunity for the first year will be between $313 million and $563 million. She speculates that Yahoo will outsource no more than 15% of its search ads to Google.

She says now that based on her market research and conversations with Yahoo insiders, the feds will likely limit the agreement in a way that keeps Yahoo’s take to her estimates.

By Scott Moritz

Android lands at T-Mobile Tuesday, and as part of the effort to deliver the Google phone to the mobile market, T-Mobile is considering including free e-mail access.

The new Android-powered phone will have Google’s (GOOG) Gmail service built in, and T-Mobile executives are considering offering access to Gmail free, without the need for a data plan, says one person close to the discussions.

The HTC-manufactured T-Mobile phone will be the first of the hotly-anticipated Android-operated handsets, and one of several new challengers to Apple’s (AAPL) iPhone. The Android project was created by Google to cultivate an open application platform to operate next-generation mobile phones.  T-Mobile  – a unit of Deutshe Telekom (DT) - is expected to unveil the phone during a press conference at 10:30 ET Tuesday, and offer it for sale later this fall.

Analysts see the Google phone as the beginning of an important lead in mobile Internet advertising through ads appearing on Android powered phones. Sandeep Aggarwal, an analyst with Collins Stewart, estimates that the phone will generate $5 billion in incremental revenue for Google by 2011.

Should T-Mobile decide to offer free Gmail access, it would be seen as a big counter move to Research in Motion’s (RIMM) BlackBerry e-mail service, which costs $15 a month extra. And if telcos embrace Google’s ad-supported free e-mail, it could help drive Google’s ultimate aim to spread its successful desktop advertising business to mobile phones.

The move to provide free Gmail has risks, however.

T-Mobile could undercut its own data revenue stream from BlackBerry subscribers if users trade in their Curves and Pearls for the Android phone. But T-Mobile, the No.4 wireless shop, needs an attention-getting strategy like free e-mail to help set itself apart from bigger players like AT&T (T), Verizon (VZ) and Sprint (S).  

Google referred calls for comment to T-Mobile and a T-Mobile representative could not provide an immediate comment.

As for the HTC Android phone itself, one user who got an early trial described the slide out keyboard as a little awkward for some typing tasks. The browsing quality however was “better than BlackBerry and close to the iPhone.”

By Scott Moritz

Big tech is putting its cash to work to appease investors.

Microsoft and Hewlett Packard say they will throw weary shareholders a cash treat. Microsoft created a new five-year $40 billion share buyback plan and an 18% dividend boost. And HP has set aside $8 billion for share repurchases. The top PC maker had $3 billion of buyback money still in its budget under an $8 billion program it started in November.

The buybacks are aimed at restoring investor interest in companies that have had very little to show in terms of growth amid a sluggish tech spending environment. Using some of the mountains of cash also helps discourage activist investors from forcing the companies to make a similar move on somewhat different terms. 

The move comes less than a week after Microsoft shares hit a two-year low on a broad credit-crisis selloff on Wall Street. The No.1 software shop says it has recently completed a previous $40 billion stock repurchase plan and by Microsoft’s tally, the company has now spent $115 billion on stock buybacks and dividends in the past five years.

Microsoft will pay a dividend of 13 cents a quarter, or 52 cents a share. That is up 2 cents from the prior dividend of 11 cents a quarter, and up 8 cents annually from the 44-cent level.

Microsoft’s board has also authorized up to $6 billion in debt financing including a new $2 billion participation in the commercial paper market.

“The company’s strong credit quality coupled with investors’ current appetite for high quality paper provides a unique opportunity for the company to establish its first-ever commercial paper program and enhance its capital structure,” Microsoft treasurer George Zinn said in a press release.

The company says it may use the financings to help fund operations and buy back stock.

Shares of Microsoft rose 5% and HP was up 2% in premarket trading Monday.

By Yi-Wyn Yen

Google says it’s misunderstood, and it’s stepping up its campaign to set the record straight. This week three of Google’s most visible executives aggressively defended the search giant’s controversial revenue-sharing agreement with Yahoo through multiple blog posts and a news conference.

Since news leaked that the Department of Justice hired one of the nation’s top litigators Sandy Litvack for a possible antitrust case against Google (GOOG) two weeks ago, the search giant has increased its outreach efforts to tell its side of the story.

Google claims there’s a lot of misconception about its pact to outsource a portion of Google ads on Yahoo (YHOO). The deal has been under review by the DOJ for the past three months. Google plans to implement its search pact, which would place Google’s ads on Yahoo’s Web properties, in early October.

There is a growing concern among critics that the deal will allow Google to monopolize search advertising and that having the No. 1 and No. 2 search engines join forces will make the online ad market less competitive. Google’s chief economist Hal Varian and North America advertising president Tim Armstrong together posted three blogs this week arguing that this simply isn’t true.

Meanwhile Google chief executive Eric Schmidt in a news conference Wednesday blamed archrival Microsoft (MSFT) for masterminding the antitrust scrutiny in the press. “We are quite certain Microsoft is busy helping everyone get upset about things,” Schmidt said.

Microsoft spokesperson Jack Evans said the company had no comment on the matter beyond  a congressional testimony made by General Counsel Brad Smith in mid-July.

In an unusual move, a Google exec blasted a report by marketing firm SearchIgnite. Google typically does not comment on third-party studies, but in a blog post Varian rattled off four reasons why the two-month-old report is “flawed” and uses “questionable methodology.” The SearchIgnite study concludes that advertisers could expect to pay 22% more on average for keywords on Yahoo if the Google-Yahoo pact goes through.

Beyond that, the top Google brass aren’t spinning much new information. On Wednesday, Google put out a two-page press release entitled “The Facts about the Yahoo!-Google Advertising Agreement,” which Armstrong repackaged into two posts on Google’s public policy blog on Thursday and Friday.

Google execs stress that the ad-sharing partnership is good for online advertising because Yahoo remains an independent company. After months of acquisition talks with Microsoft, Yahoo ran into Google’s arms on June 12. Yahoo executives said the Google pact was a better choice and could bring in an extra $800 million in annual revenues.

While Google is actively rallying for the deal, Yahoo has remained silent this week. Yahoo spokeswoman Tracy Schmaler says top Yahoo executive Hilary Schneider talked about the company’s commitment to its Google partnership at a Sept. 11 media event.

The big G contends the agreement will ultimately help Yahoo improve its services, but one wonders then why Google is the one doing all the talking this week.

By Scott Moritz

If Dell’s (DELL) view is right, the tech spending hiatus that started in July isn’t ending anytime soon.

Less than a week after Dell warned that a U.S. slowdown in information technology spending was spreading to Europe and Asia, the No.2 computer maker now says the slump is getting worse.

“We saw some weakness in July, and August is always slow,” Dell CFO Brian Gladden said at a Bank of America investor conference Tuesday. “By the second week in September, we started getting the sense that this isn’t coming back the way we expected it to,” Gladden said. Earlier Tuesday, the company issued a statement that it was “seeing further softening of demand in global end-user demand in the current quarter.”

Dell shares tumbled 10% to a new seven-year low after the company gave its latest grim assessment of the business climate. Outlining the areas of weakness, Gladden pointed out that in the U.S., spending by small and medium-sized businesses is down, and the financial sector, currently in a credit crisis swoon, was a bit challenging. “There’s not a lot of IT spending going on in the financial businesses,” Gladden said.

Overall big business spending, which accounts for about 80% of Dell’s revenue, was “mixed but weaker than we expected in the aggregate,” Gladden said.

Internationally, the U.K. remained a tough environment, Germany had been solid but turned weak in recent weeks and sales in China, which had been slow during the Olympics, had not snapped back as expected, said Gladden.

Tech investors have taken some confidence from the relative good health and solid spending in growing markets outside the U.S. And Wall Street’s deepening woes, while significant, had not had a dramatic effect on the larger IT market. At least not yet.

But as Dell tells it, cash-hoarding corporate customers aren’t exactly ignoring the drama of Lehman Brothers’ bankruptcy protection and AIG’s financing crisis.

Tuesday’s news on the consumer side, where Dell has made efforts to be a bigger player, wasn’t very encouraging either.

Best Buy (BBY), which has been selling Dell computers since last December, blamed its disappointing earnings Tuesday on higher costs and a dip in consumer spending as fuel and food prices rise. “We have some work to do in terms of managing our expenses amid a challenging macro economic environment,” Best Buy CEO Brad Anderson said in a press release.

Dell’s shift to a retail strategy isn’t well-timed. Since founder Michael Dell’s return to the top job in early 2007, Dell has attempted to shift from its online, made-to-order PC-maker approach to more of a retail PC supplier. As part of the effort, the company says it has already eliminated two factories, including one in Austin, Tex.

Dell is looking to cut more costs and has been shopping its manufacturing plants around as part of an attempt to move more of its manufacturing to partners. The company is about one year into a three-year cost-cutting plan and is expected to have reached its target of eliminating 8,900 employees by the end of this quarter.

Asked if the company was considering a quicker move to bring down expenses, Gladden said: “We are taking a fresh look at all those costs given the environment.”

The news comes a day after PC rival Hewlett Packard announced that it would cut 24,600 people, or 7%, of its combined EDS and HP workforce. Nearly half of those workers targeted are in the United States. HP plans to replace some of those workers with employees in other countries as part of its globalization plan.

By Scott Moritz

The planned advertising partnership between Google (GOOG) and Yahoo (YHOO), which was devised during Microsoft’s (MSFT) unsolicited bid for Yahoo, is headed for a federal antitrust challenge. And that could mean, according to one analyst, that Google could wind up walking away from the deal.

Two days after the Association of National Advertisers sent a letter to the Justice Department opposing the Google-Yahoo ad pact, antitrust regulators hired high-powered attorney Sanford Litvack to lead its legal challenge to block the deal, according to The Wall Street Journal. For a look at what veteran antitrust lawyer Stephen Axinn told CNNMoney.com about Litvack’s hiring and what it means for Google and Yahoo, click here.

Part of Google’s strategy to form a search ad partnership was to keep Yahoo out of Microsoft’s hands. After failing to strike a deal, Microsoft and Yahoo went separate ways and Yahoo continued to pursue the ad partnership with Google.

Now, it might make more sense for Google to withdraw the partnership plan rather than fight the Justice Department in court, said Stifel Nicolaus analyst Blair Levin. Even though Google and Yahoo don’t need regulatory approval for their ad arrangement, Levin wrote in a research note Tuesday that “it would be risky…to proceed if they are getting signals that the agency has serious concerns.”

In addition, another analyst suggested that Google would not suffer too much if its Yahoo search ad plans were killed.  Cowen analyst Jim Friedland wrote in a note that he thought a Yahoo deal would only boost Google’s earnings before charges by 1% to 2% in the first 12 months of the deal.

Representatives for Google and Yahoo did not immediately return calls seeking comment.

But Google has already voluntarily delayed the start of the joint advertising process until October so regulators could examine its potential impact. “We are confident that the arrangement is beneficial to competition,” Google said in statement Tuesday.

The search ad partnership was first proposed in June when Microsoft went public with its offer to acquire Yahoo. The ad arrangement called for Google to run its text ads next to Yahoo’s search results. In exchange, Google would pay Yahoo an unspecified cut of the search revenue. But from the beginning, the deal between the top two Internet search services invited antitrust scrutiny and, as it turned out, some industry opposition.

After reviewing the deal, the ANA said in its letter to the Justice Department that Google and Yahoo would control 90% of the search ad market. “The partnership will likely diminish competition, increase concentration of market power, limit choices currently available and potentially raise prices to advertisers for high quality, affordable search advertising,” the ANA wrote.

Google responded indirectly to the ANA letter saying that “While there has been a lot of speculation about this agreement’s potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact.”

In somewhat related news, Google, in an attempt to ease concerns among regulators, announced on its official blog late Monday that it has decided to shorten the length of time it keeps users’ Web information to 9 months from a previous target of 18 months. Google says it compiles some user information like Internet addresses and search history to better match ads to user interests.

Pushing further into Microsoft’s (MSFT) territory, Cisco (CSCO) announced Wednesday that it has signed a $215 million deal for business e-mail shop PostPath.

The move bolsters Cisco’s strategy to expand into the office software market by adding e-mail and calendar services to its existing roster of so-called enterprise networking features. PostPath, based in Mountain View, Calif., develops Linux-based software that gives corporate customers an alternative to Microsoft’s Exchange system. PostPath says its e-mail servers are compatible with a nearly all business systems, including Apple (AAPL) and its iPhone. 

Cisco, in announcing better-than-expected quarterly profits but a lower growth forecast, said earlier this month that it planned to make acquisitions in adjacent markets outside its core business selling Internet equipment.

With Google going door-to-door trying to sell its business software to Microsoft clients, this latest move by Cisco into e-mail isn’t necessarily a great comfort to the Redmond, Wash. giant. Given Cisco’s dominance in corporate IT gear, there is potential for Cisco to offer an alternative to Microsoft Exchange.

Cisco plans to add PostPath’s applications to its Web-based services, also known as “cloud computing.” Software providers have for years been looking for ways to let business users access their desktop computing tool wherever they happen to be. This way employees could collaborate on tasks using features like instant messaging, video conferencing or document-sharing services.

Microsoft’s quest to extend its desktop software dominance to the Web was a driver behind its failed bid for Yahoo earlier this year.

By Yi-Wyn Yen

Former Viacom CEO Frank Biondi and former Nextel CEO John Chappel will join Carl Icahn as the newest additions to Yahoo’s board.

All eyes are on Icahn and his gang. The three amigos will need to start making changes to placate shareholders soon because if they don’t, it’s likely that nobody on the board will. The three were part of Icahn’s original proxy slate that ran under a campaign to sell Yahoo (YHOO) to Microsoft (MSFT). Icahn dropped the fight in July in exchange for three seats on the company’s board.

Shareholders are still waiting for Yahoo to come up with a plan that will drive up the stock. Since mid-June, when Yahoo announced that talks with Microsoft were over, the stock has dropped roughly 20% in value and has hovered in the low $20s. Microsoft had originally offered to buy Yahoo at $31-a-share. Earlier this month investors re-elected Yahoo’s eight incumbents. But investors signaled their unhappiness with CEO Jerry Yang and chairman Roy Bostock. Yang received 66.3% of the votes while Bostock received the least, with 60.4% votes.

Wall Street isn’t convinced that Icahn and co. can do much to turnaround Yahoo. Says Thomas Weiser Partners analyst Christa Quarles, “Yahoo needs someone to help fix the business, and I don’t know if Icahn has the background to do that.”

Icahn has yet to reveal what his plans are to drive shareholder value for Yahoo beyond selling part or all of the company to Microsoft. The corporate raider has most recently pushed for management change at Blockbuster (BBI) and Motorola after securing board seats at those companies. Last year, Blockbuster CEO John Antioco agreed to step down after Icahn initiated a campaign to cut his salary. After Icahn won two seats on Motorola’s board in April, he persuaded the company to dump its cell phone division and was instrumental in pushing out former CEO Ed Zander.

Chappel, who is president of Seattle-based private equity firm Hawkeye Investments, was unavailable for comment. Biondi, a senior managing director of private equity firm WaterView Advisors, responded in an e-mail that he does not comment on boards that he serves. Biondi is currently a director of five other boards, including Seagate (STX) and Cablevision Systems (CVC).

By Yi-Wyn Yen

Finally, some good news for Yahoo. Major tech advertisers are shifting a bit of the money they spend on Google (GOOG) to Yahoo (YHOO), according to a new report by marketing firm Covario.

Advertisers from 12 tech companies, including Research In Motion (RIMM), Hewlett-Packard (HPQ), Intel (INTC), and Lenovo, collectively moved 4% of their U.S. search advertising budget from Google to Yahoo in the second quarter. Covario notes this is the first quarter that spending for Yahoo’s paid search increased in two years.

However, the incremental shift should give little reason for Google to worry. These tech advertisers, whose online ad spending is tracked by Covario, are still spending the bulk of their money on Google. The search king received 81.2% of the paid search spending from these advertisers for the second quarter compared with just 14.3% for Yahoo. Microsoft (MSFT) came in a distant third with 4.3%.

Wall Street analysts say the small shift in ad dollars from Google to Yahoo is not surprising. Google has deliberately throttled back on paid search – those blue text ads that appear on the right side of a Google search results page - to give Internet users a better browsing experience. Direct marketers who still want to place their ads somewhere could be moving their spending to Yahoo.

Explains Thomas Weisel analyst Christa Quarles: “Say I type in ‘Harry Potter’ into Google. I don’t get any ads. But put those keywords into Yahoo and you get ads up the wazoo. The bigger question is, has Google gone too far with their initiative?”

Jonathan Rosenburg, Google’s top executive for product management, says the company is unlikely to change its game plan. During Google’s earning call last month, Rosenburg acknowledged that ads shown on the site were “at an all-time low relative to the last few quarters.” The company will continue to work on improving the quality of its ads. “Larry [Page] often says that we’d be best off if we just showed one ad, the perfect ad,” Rosenburg said.

If Google doesn’t reverse its less-is-more policy, Yahoo could continue to benefit from a shift in ad dollars for the current quarter.

By Yi-Wyn Yen

Yahoo (YHOO) on Tuesday disclosed that CEO Jerry Yang and other directors were re-elected last week to its board with far fewer votes than previously thought.

On Tuesday, Yahoo said it learned that Broadridge Financial Services, a proxy accounting firm that handles submitting votes for major shareholders, forgot to include millions of votes in its tally. Five of Yahoo’s nine incumbents received a much lower margin of approval after votes from Yahoo’s largest institutional shareholders, Capital World Investors and Capital Research Global Investors, were belatedly added.

Capital Group on Monday had asked Broadridge re-examine the votes.  Broadridge subsequently found it had failed to include 200 million votes from the Capital Group that were withheld for Roy Bostock, Ron Burkle and Yahoo CEO  Jerry Yang, and 100 million votes withheld for Arthur Kern and Gary Wilson. Instead of an 85.4% shareholder approval, Yang actually received 66% of votes, and Yahoo chairman Bostock had 60% as opposed to 79.5% that was originally reported Friday. Yahoo’s nine directors were running uncontested.

In a statement, Yahoo blamed Broadridge’s mistake on a “truncation error” that resulted when share numbers exceeded eight digits.

Capital Research’s Gordon Crawford has been particularly critical of Yahoo for the way the company handled negotiations with Microsoft (MSFT) over the software giant’s buyout offer. Capital Group spokesman Chuck Freedhoff says the institutional funds, which own 16.3% of Yahoo’s shares, just wanted to make sure its votes were reflected in the election. “We wanted to make sure Broadridge transmitted our votes,” Freedhoff said.

The new findings show greater shareholder dissatisfaction with Yahoo’s directors, but that won’t change the board’s makeup. The nine incumbents were all re-elected last Friday at Yahoo’s annual shareholder meeting. Activision-Blizzard CEO Bobby Kotick announced his resignation two weeks ago and his spot has been filled by shareholder activist Carl Icahn. The billionaire will also get two more seats on an expanded 11-member board.

Former AOL chief executive Jonathan Miller will remove himself from consideration as a board appointee, according to a source familiar with the matter. Time Warner (the parent company of AOL and Fortune) last week said a non-compete agreement Miller signed prevents him from serving as Yahoo director. Miller was unavailable for comment on Tuesday.

Yahoo will name the two additional board appointees by Aug. 15.

By Yi-Wyn Yen

SAN JOSE, Calif. – Yahoo’s shareholder meeting on Friday was pretty dull, but that didn’t stop things from getting ugly for the troubled Internet portal as both Time Warner and Microsoft signaled their dissatisfaction with the company.

Time Warner (TWX) (Fortune’s parent company) said that ex-AOL chief executive Jonathan Miller cannot join Yahoo’s board because of a non-compete agreement, although Yahoo (YHOO) announced the nomination last week. Meanwhile, Microsoft (MSFT) denounced Yahoo chairman Roy Bostock’s interpretation of its negotiations with the company.

Miller was largely expected to be named as one of the two appointees in a compromise with activist investor Carl Icahn. On July 21, Icahn agreed to abandon his proxy fight to oust Yahoo’s directors in exchange for three seats on an expanded board. The new 11-member board so far includes Yahoo’s eight incumbents and Icahn. The two members will be named within two weeks.

A Time Warner spokesman said that Miller, who stepped down from AOL in November 2006, signed a non-compete clause that prevents him from joining a competitor like Yahoo until March 2009. “His non-compete clause was never waived,” said Time Warner spokesman Keith Cocozza.

A source familiar with Yahoo’s operations disagreed. This person said Miller and Yahoo management had approached Time Warner for approval before Yahoo announced Miller’s nomination two weeks ago. The source would not say whether Yahoo received the approval but then said the company would not have proceeded otherwise.

A Yahoo spokesperson declined to comment on whether Miller will remain a board nominee.

Shareholders gave their overwhelming support to Yahoo’s incumbents. CEO Jerry Yang received 85.4% of approval, Bostock garnered 79.5% and Vyomesh Joshi of Hewlett-Packard received the highest support with 92.9%.

Time Warner and Yahoo weren’t the only ones in a standoff. Microsoft took issue with how Bostock characterized negotiations with the software giant.

During the Yahoo shareholder meeting, Bostock claimed that Microsoft was a bad communicator. During the six-month ordeal, Bostock said Yahoo’s board “encouraged them to engage in more discussions, but they in fact reduced engagement and suggested they’d lower the price and launch a proxy fight.” Bostock also said that Microsoft did not “explicitly communicate to our board” that it wanted to raise the offer from its original $31-per-share bid to $33-per-share.

Two hours after the Yahoo meeting ended, Microsoft issued a press release that said, “Yahoo is attempting to rewrite history yet again with statements that are not supported by the facts.”

By Yi-Wyn Yen

SAN JOSE, Calif. –Carl Icahn made the right choice not to fly out west to attend the Yahoo shareholder meeting Friday.

The billionaire activist who is the newest Yahoo director wasn’t the only one that didn’t show up to the  gathering. Judging by the number of shareholders who did attend, interest in the annual meeting was fairly low. But there were still some fireworks from shareholders who remain disgruntled over how Yahoo’s board handled buyout negotiations with Microsoft.

Eric Jackson, a dissident shareholder from Florida, kicked off the question-and-answer session  by criticizing Yahoo chairman Roy Bostock. “I think you’re overpaid for compensation,” Jackson said. “I think you overplayed your hand with Microsoft and you’ve overstayed your welcome.”  The audience clapped and cheered and then laughed when Yang replied, “Eric… It’s good to see you again.”

Bostock defended his position on the board. He claimed that he made less than $500,000 in the past year and said there was a “mischaracterization and misperception” of how he handled the Microsoft deal. When another shareholder demanded that Bostock file a time sheet on the Internet, Bostock said that he would be happy to show that he worked “26 hours in a 24 hour days… in the last six months.”  He again stressed that the entire board was “deeply involved” with the Microsoft (MSFT) negotiations.

Over the course of two hours, the board’s eight members were re-elected and Yahoo’s management team – CEO Jerry Yang, president Sue Decker and CFO Blake Jorgensen – reiterated their strategy to boost the company’s top and bottom lines by turning Yahoo into a starting place and a “must-buy” for advertisers.

It was clear that Yahoo (YHOO) had expected more attendees. Only a quarter of the roughly 700 chairs available were filled in the darkened ballroom that Yahoo rented at the Fairmont Hotel in downtown San Jose. Mountains of pastries were left untouched in the hallways of the hotel. Rooms set up to deal with an overflow capacity went unused.

“We planned for this before the proxy fight came to an end,” said Yahoo spokesman Adam Grossberg.

Icahn gave up his proxy fight last week in exchange for three seats on Yahoo’s board. Along with the corporate activist, the two Icahn appointees on the newly expanded 11-member board, will be announced within two weeks.

In a blog post Thursday, Icahn wrote that he wasn’t coming to the shareholder meeting because he didn’t want to turn it into a “media event for no purpose.”  Bostock said he was looking forward to working with Icahn, and using air quotes, referred to Icahn as a “good guy despite what some say about him.”