Microsoft
SAN FRANCISCO–Microsoft Corp.’s attempt to take over Yahoo Inc. has become so tortured it may help Internet search and advertising leader Google Inc. grow stronger, undermining Microsoft’s main reason for pursing the deal.
"We find this to be a very advantageous situation for Google," said Cantor Fitzgerald analyst Derek Brown. "The longer this gets dragged out, the better for Google."
Yahoo signalled it is bracing for a protracted battle when an announcement and a media leak late Wednesday provided a glimpse at its labyrinthian search for alternatives to Microsoft’s bid of more than $40 billion (U.S.).
The options include an experimental advertising alliance with Google that could lead to a broader partnership and, according to published reports, a combination with the online operations of Time Warner Inc.’s AOL. Google also owns a 5 per cent stake in AOL.
As part of the AOL deal, Time Warner would get a roughly 20 per cent stake in the merged entity in return for a substantial sum of cash that would help Yahoo buy back some of its stock at a price well above Microsoft’s offer, which was initially valued at $31 per share.
"This is the first time we have seen real feasible alternatives that could derail the Microsoft deal," said analyst Jeffrey Lindsay of Sanford C. Bernstein & Co.
Other analysts doubt Yahoo will succeed in thwarting Microsoft but believe it could force the world’s largest software maker to raise its offer as high as $35 per share, or about $50 billion.
For its part, Microsoft has indicated it may lower its offer if Yahoo doesn’t accept the current bid by April 26 guaranteed cash advance loan. But that threat came before details of Yahoo’s alternatives with Google and AOL emerged.
Although Microsoft has plenty of money to up the ante on its own, it may draw upon another deep pocket – Rupert Murdoch’s News Corp.
Under this reported scenario, News Corp. would contribute the top social network, MySpace.com, and some cash in a Yahoo takeover. The proposed deal would put three of the Web’s most popular sites – Yahoo, MySpace and Microsoft’s MSN – under the same umbrella.
And in another ironic twist, Google could benefit if Microsoft and News Corp. buy Yahoo because it already has a long-term contract to show ads on MySpace.
Microsoft, Time Warner and News Corp. all declined to comment. A Yahoo representative didn’t respond to inquiries about the AOL deal. Yahoo directors were to meet yesterday to discuss the company’s options.
The reported negotiations to bring together some of the world’s largest websites underscores the Internet’s maturation as a business sector. As consumers spend more time online, the smart money is following them – and now there’s a mad scramble to latch on to the prime properties in this promised land of future profit.
"The most likely outcome here is that a few players will become more and more dominant on the Internet," said Georgia State University professor James Owers, a specialist in media and corporate finance.
The stakes are so high News Corp. and AOL might decide to join forces if their latest talks with Microsoft and Yahoo don’t pan out, said Citigroup analyst Jason Bazinet.