With the Google-DoubleClick merger wrapped up Tuesday, Yahoo may face even greater pressure to find itself a buyout partner, according to Wall Street analysts and investors.
The Google-DoubleClick deal presents a greater threat to Yahoo's business of providing both Internet search advertising and display advertising, note analysts. And, as a result, Yahoo now has another issue to contend with, beyond Microsoft's unsolicited megabillion dollar buyout deal waiting in the wings.
"The Google-DoubleClick deal provides further firepower to Microsoft to win over Yahoo," said Mark May, an analyst with Needham & Co. "Microsoft's bid price is the key driver to a Microsoft-Yahoo merger, but increasing competition from Google is the second factor. And within the broader category of competition from Google, the DoubleClick deal is one more factor."
DoubleClick will provide Google a strong entry into display advertising and transform it into more of a full-service advertising company with both display and search--a combination that previously differentiated Yahoo from its competitors, May said. As a result, it may weaken Yahoo's case for remaining independent.
Yahoo investor Eric Jackson, shareholder activist and president of hedge fund Ironfire Capital, notes the merger only strengthens the case that the industry needs a stronger No. 2 to compete against Google-DoubleClick.
"It doesn't help Yahoo's management in any way who are still trying to seek out a white knight," Jackson said. "This doesn't present any other possible suitor for them other than Microsoft and raises the question of how Yahoo is going to better compete against a combined Google-DoubleClick on their own? Wouldn't they be better teamed up with Microsoft?"
A number of Wall Street and industry observers, as well as antitrust experts, had largely been anticipating Google to land the DoubleClick deal and receive regulatory and shareholder approval.
"It's hard to see how Microsoft, or Yahoo, had been proceeding as if this deal (Google-DoubleClick) were not going to happen," said Derek Brown, an analyst with Cantor Fitzgerald. "It's fairly logical to think that one of the reasons the deal was initiated in first place was because of Google's expected acquisition of DoubleClick. It's hard to see how there's a radical change in viewpoint now."
One analyst notes that Yahoo, ironically, got itself into its current predicament of greater pressure from Google by expressing an interest in acquiring DoubleClick years ago. That, in turn, put Microsoft and Google into a heated bidding war. But last April, Google announced it had won the battle with a $3.1 billion bid for DoubleClick.
And while the Google-DoubleClick deal may put Yahoo's business at greater risk, it could help grease the skids on the regulatory front should it ultimately do a deal with Microsoft, said antitrust experts.
"I would expect the Commission to assess the Microsoft-Yahoo deal using exactly the same legality benchmark that it used in the Google-DoubleClick merger," said Luc Gyselen, an antitrust attorney at Arnold & Porter's Brussels office. "In that case, the Microsoft-Yahoo deal strikes me as pro-competitive. It is indeed important for customers to have a few real alternatives to choose from. It does not matter all that much how many alternatives there are on paper. What matters is how effective the alternatives are in the real world."
Gyselen, who previously served in several senior positions with the Directorate-General for the Competition Bureau of the European Commission, noted that Microsoft's past troubles with the Commission should not affect any outcome in how its merger efforts are treated in Europe.
"Talking from my own experience, each merger or antitrust case is handled on its own merits. Therefore, I cannot imagine that Microsoft's past and current dealings with the antitrust part of the Commission's competition department would create spillover effects into the mergers field."
Elinor Mills contributed to this blog.