The Wall Street Journal reported yesterday that Yahoo! and Google are in talks to moved a step further, with regards to their search advertising deal. The 2-week test where Yahoo! Search results showed Google AdSense ads is supposedly looking so encouraging that both companies are already talking about extending the deal.
Needless to say, if this deal does go through, it would help Yahoo! avoid Microsoftâ€™s bid to buy them over. The benefits of such a deal for Yahoo! in the long run, though, are extremely limited. Yahoo! would be handing over control of its most important asset – Yahoo! Search Marketing – to Google and would turn into a sitting duck in the future.
Shareholders should be worried about the competency of Yahoo!’s board of directors if this information is true. They are either taking desperate measures to avoid being acquired by Microsoft at all costs or are trying some really poor tactics to get Microsoft to raise their bid. Either way, their actions seem puerile and selfish with little or no thought to raising shareholder value.
Analysts have reported that a Google-Yahoo! deal would increase Yahoo!’s revenues by about 33% and Yahoo! shares would likely gain $5. Such a deal could raise an additional $1 billion for Yahoo! annually, according to Citigroup Global markets analyst Mark Mahaney. However Microsoft’s offer of $45 billion might seem far more enticing to shareholders.
It is almost certain that if such a deal were to take place, Microsoft would make its displeasure known by invoking antitrust laws. Microsoft’s top lawyer Brad Smith has said, “Any definitive agreement between Yahoo! and Google would consolidate over 90 percent of the search advertising market, in Google’s hands. This would make the market far less competitive, in contrast to our own proposal to Yahoo.” Smith further mentioned that Microsoft would closely assess all its options.
ValleyWag suggests that in order to avoid antitrust issues, Yahoo could set up an ‘open market place’ and invite both Google and Microsoft to make bids for advertising there. This system could work well if Google were really interested in keeping Yahoo! out of Microsoftâ€™s clutches which seems like a reasonable belief.