Jerry Yang's resignation as chief executive of Yahoo! added $2billion (£1.33billion) to the value of the company yesterday as investors licked their lips at the prospect of a new deal with Microsoft.

After months of turmoil and a steeply falling share price, it emerged late on Monday night that Mr Yang is to step down as soon as the embattled internet group finds a successor.

In morning trading, shares in Yahoo! soared by 12 per cent, rising $1.25 to $11.88 amid hopes that Steve Ballmer, Microsoft's chief executive, would return to buy Yahoo!'s search business, if not the whole company.

Mr Yang, a co-founder of Yahoo!, will remain as chief executive until a replacement is found, after which he will return to his former role, concentrating on the company's development strategy and technology advances under his former title of “chief Yahoo!”. He will continue to serve on the board.

Mr Yang, 40, became chief executive in June 2007 and led Yahoo! through a repositioning of its strategy, opening up to developers to add value to the site, which remains one of the most popular portals on the internet.

However, his many critics said that he was unable to give the company proper leadership when it was targeted by Microsoft and then buffeted by the economic downturn. Yahoo! has been hit by the fall in online display advertising. In the spring Yahoo! rejected hostile bids from Microsoft, which had offered $33 per share, valuing the company at $47.5billion. Last week, Yahoo! shares dropped below $10, a five-year low.

The negotiating breakdown triggered a shareholder revolt led by Carl Icahn, the billionaire investor, who called for Mr Yang to go. Mr Icahn reached a truce that put him and two allies on Yahoo!'s 11-member board, but he has been lobbying for Yahoo! to pursue a deal with Microsoft.

This month Mr Ballmer categorically ruled out a takeover of Yahoo! after Mr Yang said that a deal would be the best option for both companies. Mr Yang admitted that he was still open to a new deal with Microsoft after a key advertising partnership with Google fell apart. Google pulled out when American antitrust regulators indicated that they were against the deal.

Analysts said that Yahoo!'s board could approach Microsoft under a new chief executive.

Mr Yang took over suddenly from Terry Semel, the former chief executive, whose departure also came after Yahoo!'s struggles worsened. Several senior executives have left the company under his tenure and Mr Yang recently announced job cuts of 10 per cent of the 15,000-strong workforce, which are set to take place on December 10. Roy Bostock, chairman of Yahoo!, is leading the search for a new chief executive from within or outside the company.

“Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open- platform model as well as the improved alignment of costs and revenues,” Mr Bostock said. “Jerry and the board have had an ongoing dialogue about succession timing and we all agree that now is the right time to make the transition to a new chief executive who can take the company to the next level.”

In a resignation letter, Mr Yang said: “From founding this company to guiding its growth into a trusted global brand that is indispensable to millions of people, I have always sought to do what is best for our franchise.”

In a memo to employees, in reference to company's official colour, he wrote: “All of you know that I have always, and will always, bleed purple.”

The world's ten biggest websites

1 Yahoo! (yahoo.com)

2 Google (google.com)

3 Youtube (youtube.com)

4 Windows Live - Microsoft search engine (live.com)

5 Facebook (facebook.com)

6 Microsoft Network (msn.com)

7 Myspace (myspace.com)

8 Wikipedia (wikipedia.org)

9 Blogger.com (blogger.com)

10 Yahoo! Japan (yahoo.co.jp)

Source: Alexa web information company

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