The Wall Street Journal-20080206-Yahoo Studies Alternatives to Microsoft
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Yahoo Studies Alternatives to Microsoft
Full Text (724 words)Yahoo Inc. is holding out hope that there are ways it can thwart Microsoft Corp.'s unsolicited $44.6 billion takeover offer, including the emergence of a rival bidder or a business tie-up with Google Inc. that might allow it to remain independent, people familiar with the matter say.
No serious alternative bids have emerged, and antitrust experts say Google's latitude to do even a business deal with Yahoo is minimal because of likely regulatory concerns. At Microsoft, optimism is growing that the $31-a-share offer for Yahoo that it made public Friday will go through in the absence of rival bids, people familiar with the matter say.
There is no timetable for Yahoo to respond to Microsoft's offer, such people say. Yahoo has warned that the review of its options by its board "is fluid, and it can take quite a bit of time." A Yahoo spokeswoman repeated earlier statements that the board is "thoroughly evaluating the Microsoft proposal in the context of all of the company's strategic alternatives." Spokesmen for Microsoft and Google declined to comment.
Yahoo's board, in the context of alternatives to Microsoft's offer, has discussed in broad terms the possibility of outsourcing its search-related advertising to Google, one person familiar with the matter says. Yahoo could immediately boost its revenue through such an agreement because Google generates significantly more revenue for each search query. Citigroup Global Markets analysts have estimated Yahoo could increase its cash flow by more than 25% annually if it made such a deal.
Yahoo views such a Google pact as a likely key to any successful effort to avoid the Microsoft offer, people familiar with the matter say. It could come in conjunction with a rival bid or as part of a Yahoo maneuver to remain on its own. Yahoo had recently been in negotiations to outsource its search advertising in Europe to Google, people familiar with the matter say.
Google believes that an outright bid for Yahoo would face insurmountable regulatory hurdles, some of the people familiar with the matter say. But experts say even a search-advertising pact would likely encounter serious objections on the grounds that it would reduce competition. Last year, Google had a 71% share of U.S. search- advertising revenue, and Yahoo was second with 8.9%, according to research company eMarketer Inc. For U.S. online advertising overall, Google garnered 28% of revenue, and Yahoo was second with a 15.4% share in 2007; Time Warner Inc.'s AOL had 6.6%, and Microsoft's MSN had 6.5%. In December, Google handled 56.3% of U.S. search queries, while Yahoo handled 17.7% and Microsoft handled 13.8%, according to the Nielsen Online unit of Nielsen Co.
In recent years, U.S. regulators have shown reluctance to scuttle deals on antitrust grounds. But the Yahoo situation is so high-profile that they would be compelled to respond to any arrangement that raised anticompetitive concerns, experts say. A Google-Yahoo combination or partnership would fall into that category.
"The idea would be that Google is bailing out Yahoo and Yahoo would owe something to Google," says Barak Orbach, a law professor at the University of Arizona who specializes in antitrust issues and regulation.
Google, based in Mountain View, Calif., has said Microsoft's approach to Yahoo "raises troubling questions" about whether it would give Microsoft, of Redmond, Wash., too much power, which could be abused. Microsoft has responded by saying the deal would "create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising."
Some investors have raised the possibility that Yahoo, Sunnyvale, Calif., could try to remain independent by selling assets, such as its roughly $14 billion minority stakes in companies including Yahoo Japan Corp., or it could sell parts of the company. But people familiar with the matter said Yahoo doesn't view breaking up the company as a leading option. Such a move, along with a Yahoo-Google partnership, would likely face other hurdles. Yahoo would have to prove to its shareholders that a deal would be more beneficial than the 62% premium to Yahoo's recent share price offered by Microsoft. Many analysts believe Microsoft is prepared to increase its bid if necessary.
AT&T Inc., Comcast Corp., News Corp., Time Warner and Verizon Communications Inc., which all are viewed as possible bidders, aren't considering offers, people familiar with the matter say.
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Robert A. Guth contributed to this article.
