Yahoo Takeover Bid Takes Dramatic Turn

(CBS/AP)  Yahoo Inc.'s last-ditch efforts to avoid a takeover by Microsoft Corp. appear to be setting the stage for a dramatic finale featuring a rich cast of Internet and media stars.

Eager to frustrate Microsoft in any way possible, Internet search leader Google Inc. has already agreed to help out Yahoo by participating in an unusual test that will gauge how much more advertising Google can sell for its struggling rival.

The two-week experiment announced Wednesday will be limited to ads posted alongside a small percentage of Yahoo's online search results in the United States.

If Yahoo's maneuvering raises the pressure for a higher bid, Microsoft reportedly may mount its counterattack with a surprising ally - Rupert Murdoch's News Corp., whose media empire already includes the Fox television networks, The Wall Street Journal and the popular online hangout MySpace.com.

If Microsoft and News Corp. were successful in a joint bid, it would unite three of the Internet's most popular Web sites - Yahoo, along with MySpace and MSN.com.

The New York Times reported Microsoft's discussions with News Corp. late Wednesday, citing people involved in the discussions. "There's a long way to go before anything is definite," one person involved in the talks told the Times.

Yahoo reportedly hopes to build upon the Google deal by combining its online operations with Time Warner Inc.'s AOL, which has been struggling to regain its stride after stumbling badly for years. Google already handles AOL's search advertising and owns a 5 percent stake in the Time Warner subsidiary.

As part of the AOL deal, Time Warner would make a cash investment in return for a 20 percent stake in the combined entity, according to a Wall Street Journal story that cited unnamed people familiar with the matter. Yahoo then would use the Time Warner cash to buy back stock to put some money in shareholders' pockets. Yahoo would pay between $30 and $40 per share for an unspecified amount of stock, the Journal said.

Microsoft's bid was worth about $42 billion, or $29.24 per share, as of Wednesday, when Yahoo shares closed at $27.77.

Yahoo had previously been exploring using an alliance with MySpace as one of its escapes from Microsoft.

All the negotiations are at a sensitive stage and still could unravel, according to the newspapers' reports.

Contacted late Wednesday, a Yahoo spokesman declined to comment on the reported AOL talks. Microsoft representatives didn't respond to inquiries.

The complex web of deals faces various complications.

Because Google and Yahoo control a combined 80 percent of the U.S. search market, any long-term advertising alliance between them almost certainly would have trouble getting antitrust clearance, analysts said.

A broader relationship between Yahoo and Google also would face intense political scrutiny, said Sen. Herb Kohl, D-Wis., who chairs a committee overseeing antitrust issues.

A Yahoo-AOL combination probably would have to overcome shareholder skepticism because both companies have been fading in recent years. Before Microsoft announced its bid Jan. 31, Yahoo's market value had plunged by nearly $30 billion during a two-year period. AOL is now believed to be worth about $10 billion, about half of its value when Google paid for a $1 billion stake in 2005.

And Microsoft might alienate one of partners, Facebook Inc., if it teams up with News Corp. in an attempt to buy Yahoo. Microsoft last year paid $240 million for a 1.6 percent stake in Facebook, which is the second largest online network behind News Corp.'s MySpace.com.

Yahoo has been working for more than two months to put together a package that trumps Microsoft's takeover bid.

Microsoft has set an April 26 deadline for Yahoo to accept its current offer, which was initially valued at $44.6 billion, or $31 per share. The deal's value has eroded because Microsoft wants to pay for half of the acquisition with its recently declining stock.

Analysts have said that Microsoft can afford to pay about $35 per share, or about $50 billion, for Yahoo without undermining its future earnings. Yahoo has indicated it thinks its franchise is worth at least $40 per share, or more than $55 billion.

Yahoo's ad tests with Google make a friendly deal with Microsoft less likely and raises the odds that Microsoft will follow through on a recent threat to lower its bid, said Standard and Poor's equity analyst Scott Kessler.

In a statement Wednesday, Microsoft reiterated its bid is fair and pointed out the antitrust problems likely to prevent Google and Yahoo from working together.

"This would make the market far less competitive, in sharp contrast to our own proposal to acquire Yahoo," said Brad Smith, Microsoft's general counsel. "We will assess closely all of our options."

Microsoft has said that if things can't be worked out amicably, it is prepared to oust Yahoo's 10-member board in a proxy contest that could prolong the drama into the summer.

If the Google tests were to begin immediately, they would be completed shortly before Microsoft's April 26 deadline.

Yahoo didn't specify when the trial run would begin but said the test doesn't mean it will join the thousands of other Web sites that rely on Google to place text-based advertising links next to search requests or their other content.

Under the deal announced Wednesday, Google will show ads tied to about 3 percent of the queries made in the United States through Yahoo's search engine - the Internet's second largest after Google's.

Yahoo will still use its own technology - acquired and developed at a cost of more than $2 billion - to place ads next to the other search results on its Web site. The Sunnyvale-based company also will continue to distribute search ads to its own partners.

By flirting with Google, Yahoo is trying to prove it has other options besides succumbing to Microsoft, Kessler said. But he doubts most investors will take the Google alternative seriously, given the antitrust obstacles.

"It doesn't make a lot of sense for Yahoo to make an announcement like this when everyone knows a long-term relationship (with Google) can't happen," Kessler said. "It strikes me as somewhat desperate."

[dorlockt]

declaring there isn''''t enough "qualified" people in the United States to work there...

Posted by zoe2006 at 11:47 AM : Apr 10, 2008

Are you kidding me? Have you seen the average CS enrollment at Universities? It''s absolutely pitiful. So much so, that most universities have all but shut their CS departments down. Compared to India...who is just ridiculously pumping computer nerds out as if they grew on trees along with tons of other tech degrees.

[dorlockt]

if Microsoft gets its hands on Yahoo..yahoo will be dead..

Posted by shoreman3 at 10:27 AM : Apr 10, 2008

Yeah right, because MS is such an unsuccessful company.

[bobnjersey]

[And over the past 10 years, I''''ve had minimal problems with MS and their products. I see no reason to blame MS for keeping me down...]
[Posted by bigjer2008 at 09:54 AM : Apr 10, 2008]

this is really only possible if you don''t actually rely on it.

in most cases their tools are meant to contribute efficiency to a process. unfortunately, an untold amount of effort and additional dollars are required to safely use ms products w/o being exploited or losing data. they have a license agreement that absolves them of all responsibility from the use of their products ... directly or indirectly. and they have the sba ... whom they fund ... a fascist organization that pays bounties to disgruntled employees to rat out on their software non-compliance ... where they then place the burden of proof on the accused to absolve themselves of the charge and avoid costly litigation and/or prosecution.

[bobnjersey]

[If all those Tech savey code users could come up with a rival platform which worked perhaps they might be the Next Billionaire like gates. Where are the programmers??? Create a better platform and they will come!!!!!!!!!!!!!]
[Posted by hissteps4u at 11:48 AM : Apr 10, 2008]

there are other coders doing this ... it''s called ''open source'' software and platforms. ms is now claiming proprietary ownership of underlying technology that allows many functionalities in open source code. they are actually threatening the large corporate owners of open source code to license directly from ms or be subject to proprietary info lawsuits that may affect their business. this is akin to their fascist policies thru the sba (software business assoc) where they allege a company to be in violation of their licensing ... often from a tip from a disgruntled past employee ... but the burden of proof is on the company to show their compliant. if they don''t their subject to subpeona''s and auditors disrupting their business.

patenting of software by the patent office was the opening of this pandora''s box ... software algorithms are basically formulas ... akin to mathematical formulas ... imagine if copernicus, galileo, or newton had patented their formulas.

[bobnjersey]

[Anytime there are few choices, it is bad for the consumer. This goes doubly so for anything Microsoft gets their paws on.]
[Posted by sincityq at 09:17 AM : Apr 10, 2008]

one must understand the meaning of ''competition'' to one from microsoft ... it''s not anything like what you think it is ... unless of course you think ''just the opposite''. this is from an internal email sent from kevin johnson (president: ms platforms & services):

http://www.microsoft.com/presspass/misc/02-22KJohnsonEmail.mspx

Q: What are the benefits of a Microsoft-Yahoo! combination?

A: First, the industry needs a more compelling alternative in search and online advertising. I have personally met with top executives of the major media companies, and I know there is a desire for more competition in search and online advertising. Without this, there%u2019s less innovation, less competition, and less value being generated for consumers, advertisers, and publishers. Together, Microsoft and Yahoo! would have an opportunity to change and evolve the experiences and value we deliver to all of these groups.

------

note that the combination of two major forces in online advertising will provide more compelling alternatives in online search and advertising ... even though there will be less competition.

[hissteps4u]

It is only Natural for Microsoft to want them. Their software allows Microsoft to see what users have downloaded onto their systems and by Far Yahoo tools and programs are preferred over Google. Microsoft has done nothing wrong. If all those Tech savey code users could come up with a rival platform which worked perhaps they might be the Next Billionaire like gates.

Where are the programmers??? Create a better platform and they will come!!!!!!!!!!!!!

[timdgrim]

Or GOOHOO!

[bgwinnett]

YAHOOGLE!

[ms38654ob]

"Yee haa that Yahoo teamed up the Google! At least Google paid their employess a standard of living wage and what they are worth."

How do you know what Google pays? It''s not public information.

In fact, Google is the lowest paying employer in the entire area and is in the most expensive part of the country.

People don''t work for Google to make a good living, they work for Google because they are the best company in the world for that profession.

[lowell43]

Hang in there Yahoo. The drama continues. This is like the Super Bowl, and it''s overtime. Yahoo makes the winning field goal. Go Hayoo.