I never thought that Microsoft's unsolicited bid for Yahoo could get so interesting. It's taking on Shakespearian dimensions, with various factions lobbying, forming alliances, and establishing dowries for Yahoo's favor. In addition, News Corp. may be lending aid to Microsoft in its quest to acquire Yahoo.
Over the weekend, Steve Ballmer gave Jerry Yang three weeks to capitulate, or Microsoft would take its case directly to Yahoo shareholders. Today, 69 days into the negotiations and posturing, with Microsoft seemingly in the driver's seat, prognosticators are scratching their heads.
Under the terms being discussed between Yahoo and Time Warner, the latter would fold its AOL unit into Yahoo and make a cash investment in return for about 20 percent of the combined entity, people familiar with the situation said.
The deal, which wouldn't include AOL's dial-up access business, would value AOL at about $10 billion. As part of the deal, Yahoo would use the Time Warner cash and additional funds to buy back several billion dollars worth of its own stock at a price somewhere in the middle of the range, between $30 and $40 a share, the people said.
Yahoo is also testing the use of Google ads on a small percentage of its search pages. This could lead Yahoo to outsource its core ad search business to Google. As you might recall, Google and AOL have a connection. Google invested $1 billion in AOL in 2005 for a 5 percent stake, and it powers AOL search.
Rafat Ali of PaidContent said AOL and Google working together could help Yahoo stay independent:
If Yahoo can logically show that it gets a 30 percent to 40 percent revenue lift on the test, then they have a story to tell--that, if combined with AOL, they have enough scale, cut down costs by outsourcing search and search ads to Google, and add to that a possible share buyback with Time Warner supplying the extra cash, the combination has earned the right to stay independent.
At the same time, The New York Times is reporting that News Corp. (and its MySpace.com) may be considering throwing in with Microsoft to help acquire Yahoo.
The question for Yahoo shareholders will be which deal is best. AOL needs to find a home, and the combined AOL-Yahoo user base would be large. Getting leverage from the two audiences presents similar problems and overlapping to that of an MSN-Yahoo combination.
Google would benefit by the Microsoft block, its AOL relationship, and potentially a partnership with Yahoo, which would mean that Google is the big winner. Microsoft would be the big loser, if it doesn't succeed in acquiring Yahoo. Of course, the antitrust regulators might have a say in the matter.
In some ways, Yahoo could be a loser as well, in that Microsoft would technically and financially be a stronger mate than AOL, especially in battling Google over the long-term.
Given all the recent activity, Yahoo's fate is less clear than when Microsoft was the only option. Perhaps, Yahoo has created an elaborate illusion to convince Microsoft to increase its bid.
We may find out soon whether AOL is really an alternative to Microsoft for Yahoo, and salvation for Time Warner, and whether Rupert Murdoch wants to get in bed with Microsoft. What we know, at this point, is that Jerry Yang is not saying, "Alas, poor Yorick."