More Wheeling, But No Dealing in Micro-Hoo
Published: April 16, 2008
by Alex Woodie
There have been talks aplenty in the last week over Microsoft's plan to buy Yahoo, but there are no solid deals, and the outcome is still far from clear. Yahoo's plan to explore outsourcing lucrative ad serving to Google irked Microsoft. Meanwhile, Yahoo continued talks with Time Warner's AOL unit that could stave off an acquisition by Microsoft. And in an unexpected twist, Microsoft is talking with News Corp. about a deal to join forces to buy Yahoo.
Yahoo fired the first shot last week when it revealed it has started a "limited test" of Google's AdSense for Search service that involves Google providing ads for Yahoo Web search results. Yahoo says the trial will only last about two weeks and will be limited to 3 percent of search traffic from yahoo.com in the United States. Nevertheless, while the trial may or may not blossom into a full-on partnership to outsource all of Yahoo's advertising to Google, Yahoo was quick to point out that the experiment shows it's "exploring strategic alternatives" to being acquired by Microsoft.
Predictably, Microsoft had no sense of humor about Yahoo's Google posturing. "Any definitive agreement between Yahoo and Google would consolidate over 90 percent of the search advertising market in Google’s hands," said Microsoft's top lawyer, Brad Smith. "This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo."
Meanwhile, Yahoo and Time Warner renewed talks that could see the Internet property merged with AOL. According to reports, Time Warner would buy about 20 percent of Yahoo at a price higher than Microsoft's $31 bid, merge it with AOL, and then outsource ad serving to Google. The deal would provide a cash infusion to Yahoo, bolster its sagging AOL unit, and (most importantly for Yahoo) keep Yahoo from a Microsoft fate.
But Yahoo isn't the only party looking at creative ways to bring this two-and-a-half-month saga to an end. Last week Microsoft reportedly engaged News Corp. executives in discussions about possibly joining forces to bring Yahoo home to roost. The deal would see a three-way merger of Microsoft's MSN and Live properties, News Corp's MySpace property, and Yahoo into an Internet giant that could more effectively compete with Google. Few other details are available, and the talks have been described as "conceptual."
The Microsoft-News Corp. bid for Yahoo seems like a very long shot, especially considering Yahoo had its own talks News Corp. early on about a potential acquisition to keep it from being snapped up by Microsoft, and Microsoft has been reluctant to waiver from its initial offer. In any event, News Corp.'s decision to explore both sides of the aisle (queue the circling vultures) suggests that the last ray of hope of an independent Yahoo is quickly diminishing.
In the meantime, Yahoo still has a week and a half to accept Microsoft's $41 billion offer before Microsoft becomes hostile.
Microsoft CEO Steve Ballmer, in a letter to Yahoo's board a week and a half ago, set a deadline of three weeks to come willingly to the bargaining table before Microsoft launches an all-out attack for Yahoo, including a proxy battle to place friendly directors on the board and a marketplace battle to buy up shares of Yahoo's stock.
Yahoo executives have said that they would ratify an acquisition by Microsoft, but only if the price is right. Microsoft's initial offer of $44.6 billion, or $31 per share (a 62 percent premium at the time), undervalued the company, the executives say. Microsoft's first (and so far only) offer, which was a mixture of cash and Microsoft stock, today is worth a bit over $41 billion, or $29 per share, due to declines in Microsoft's stock since it made the offer.
Yahoo is reportedly looking for about $34 per share from Microsoft. But Microsoft has so far been unwilling to up the ante. Perhaps the threat of a Yahoo-AOL-Google block will be enough for them to increase the offer and finally get it done.
Yahoo Rebuffs Microsoft's Threat of a Hostile Takeover
Microsoft Won't Raise Its Yahoo Offer
Higher Bid for Yahoo Will Do It for Microsoft, Analyst Says
Google Says Micro-Hoo Would Hurt Internet
Yahoo Moves to Block Proxy Battle in Microsoft Takeover Bid
Yahoo Says Microsoft Bid is Hurting Business
Microsoft Presses Forward with Yahoo, as Shareholder Lawsuits Mount
Proxy Battle Looms in Microsoft's Bid for Yahoo
Yahoo Rejects Microsoft's Bid; Google's Ad Revenues Hiccup
Microsoft Offers $44.6 Billion for Yahoo!
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