Microsoft – Yahoo! Battle Gets Heated And Complicated

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Microsoft – Yahoo! Battle Gets Heated And Complicated

This was never going to be a straightforward acquisition and we all knew that. However, Microsoft’s bid to acquire Yahoo! has just turned more complicated with a whole new set of competing factions coming out of the woodwork. Google, AOL , News Corp. and Time Warner have all re-emerged as significant players.

Several moves and counter moves are working simultaneously in the Microsoft-Yahoo! battle. The Wall Street Journal reported last week that Yahoo! is negotiating with Time Warner and seems to be very close to concluding a deal whereby Time Warner would amalgamate AOL into Yahoo! and make a cash investment in return for a 20 percent stake in the newly formed alliance. The deal reportedly values AOL at $10 billion, excluding their dial-up business. Yahoo! could then use the cash to buy over large amounts of its own stock, for somewhere between $30-40 per share.

Concurrently, it appears that News Corp, who was wooing Yahoo! a while ago, has turned the tables and is believed to be trying to cut a deal with Microsoft. If this deal goes through, the AOL-Yahoo! deal would not take place and Yahoo! would instead have to settle for a Microsoft-MySpace-Yahoo! deal.

Yahoo! also announced last week that that they will conduct a limited 2-week trial run featuring Google AdSense ads in Yahoo! search results. Google will place its ads in about 3% of Yahoo! search results (instead of Yahoo!’s own ads.) The AdSense ads will be limited to the U.S. only and will not be featured on the Yahoo! Content Network.

While all of the above mentioned deals would throw up practical difficulties during the integration phase, a 3-way deal between Microsoft, MySpace and Yahoo! could be especially big and would attract enormous amounts of traffic and advertising revenues.

According to Yahoo! all of this is being done with a view to improve its stock holder value. However, the deal with Google reeks of their top executives’ stubborn dislike of Microsoft, regardless of what would actually benefit shareholders. They are clearly indicating that they would prefer to let go of their biggest asset (Yahoo! Search) rather than let Microsoft buy them over.

The New York Times reported that Yahoo!’s board met on Friday to discuss their options and have decided to continue talks with Microsoft and Time Warner this week. No decisions have been reached, though.

In fact, a deal between Microsoft and Yahoo!, with or without AOL or MySpace, appears to be the only possible way to check the growth of Google. Yahoo!’s quarterly income results are due to be announced shortly, and a lot will depend on them. If the results are bad, Yahoo! may want to grab Microsoft’s offer, but if the results are good they may give Microsoft the cold shoulder and keep them waiting in the wings.