Yahoo is closer to outsourcing its core ad search business to Google, after favorable testing of Google's advertisements on its search pages, according to a report in The Wall Street Journal.
The WSJ cited people familiar with the matter who said that a deal between Yahoo and Google is increasingly likely given the status of the testing. The report also notes that such an outsourcing deal could give Yahoo a boost in its efforts to spur Microsoft into increasing its unsolicited buyout bid for the Internet search pioneer.
Yahoo may need such help if Microsoft is concerned about the additional costs it may have to bear to retain Yahoo employees.
A report in the New York Times noted "the hidden cost of 'flight insurance' against employee defections may also be a reason Microsoft has resisted raising its bid."
The Times report, citing sources, noted Microsoft not only paid $800 million to acquire Tellme Networks but spent an additional $100 million on employee retention perks--or an average of $300,000 per employees for the 330-member workforce.
One potential take-away from the Wall Street Journal and New York Times stories is negotiations between Yahoo and Microsoft may be hitting a rough patch, after media reports surfaced last Friday suggesting the two companies may try negotiating again this week.
That reported truce arose following rapid-fire reports last week of potential additional buyers hovering nearby. The often-reported Time Warner-AOL suitor may find traction in teaming up with Google to enter into a Yahoo deal, while speculation surfaced that Microsoft and News Corp. are toying with the notion of potentially making a joint bid for Yahoo.
Last week, Yahoo announced it would begin a limited test of using Google to deliver some search advertising. Microsoft immediately came back with a stern warning that such a partnership would hurt competition.
And while the Journal report notes that some view a Yahoo-Google outsourcing agreement, beyond the two-week test, as "mere gamesmanship" given potential antitrust issues it could pose, it may, nonetheless, seem a valid alternative to those weighing their options at Yahoo.
The Internet search pioneer has run both a Microsoft buyout scenario and a Google outsourcing deal through its antitrust viewfinder, according to sources who spoke with CNET News.com.
Yahoo, meanwhile, has invested millions of dollars in its own search technology, called Panama, so a partnership with Google would be a serious departure from its previous efforts--though it would not necessarily mean that the Internet company is completely killing off its entire ad infrastructure.
And, in the Journal report, it cites sources as saying that even if Yahoo pursued an outsourcing partnership with Google, it would not necessarily nix a Microsoft deal. The report notes Yahoo, for example, could step away from its Google fling, should it hitch up with Microsoft.
News.com's Desiree Everts contributed to this report.
Updated 8:10 AM PDT with Wall Street reaction.
In rapid-fire succession Wednesday, the Microhoo buyout brawl had Yahoo throwing a one-two punch at Microsoft, with a swift comeback punch from the folks in Redmond.
And the crowd, or should I say the investors, liked what they saw. Yahoo's stock ended the day up slightly as the first punch came in toward the end of the trading day, and has continued to climb in early morning trading Thursday, following news events from last night.
Here's a quick blow-by-blow.
Yahoo looks to Google and AOL
Yahoo kicked things off . That gave investors a bit of excitement, as they envisioned the hook-up would give a nudge to Microsoft to raise its current bid.
That was quickly followed with reports that Yahoo and AOL were on the verge of doing a deal on terms that had been speculated upon over the past two months--Yahoo absorbing Time Warner's AOL and the media giant getting roughly a 20 percent stake in Yahoo.
Two new wrinkles in this long-rumored deal were its supposed imminence and word that Yahoo would come up with enough funds to lure investors with a stock buyback--worth several billion dollars, with a price in the range of $30 to $40 a share, according to a report in The Wall Street Journal.
Microsoft mashup with News Corp.?
Soon, another development emerged, with The New York Times reporting that Microsoft and News Corp. were in tentative discussions on a joint bid to buy Yahoo. The report noted that the deal would mash up Microsoft's MSN and News Corp.'s Fox Interactive Media unit, which oversees MySpace, with Yahoo.
A Yahoo-Google-AOL deal could prompt Microsoft to raise its bid, something it has resisted since announcing its unsolicited cash-stock offer back on Feb. 1, with an initial value of $31 a share. The deal price is currently valued at $29.24 based on Wednesday's close.
Microsoft, meanwhile, is hoping to keep Yahoo investors focused on its offer and the notion that it's "the one" to hook up with Yahoo. In addition to the option to raise its offer price to clinch the deal, Microsoft may find a Yahoo-News Corp.-Microsoft deal will be equally attractive to investors as a Yahoo-Google-AOL operation.
And given that Microsoft over the weekend issued a three-week deadline to Yahoo to do a deal with the software giant or face a hostile proxy fight and direct plea to Yahoo investors, proxy solicitors say the pitch and pace will be greatly accelerated between the two companies.
"It's an accelerated strategy," said Rachel Posner, senior managing director for proxy solicitation firm Georgeson Inc. "There'll be multiple road show meetings with investors in a single day, repeated calls to investors, and follow-up meetings."
She added that the topic of discussion will no longer be just about price and terms of a Yahoo deal, but now also ways in which Yahoo could bring other strategies to the table.
One gauge of investor sentiment is Yahoo's share price, of course.
Said Posner: "Investors vote with their pocket."
What Wall Street thinks
Wall Street weighed in Thursday morning, and the consensus seems to be this: a higher bid for Yahoo, and a Microsoft victory.
"We continue to believe reaching a mutual agreement with Microsoft would be the best way for Yahoo to potentially extract a higher Microsoft bid (likely $32 to $35)," analyst Heather Bellini of UBS said in a research note Thursday.
Bellini termed an AOL-Yahoo transaction as "unlikely." She noted that Yahoo may face a tough time convincing a majority of its shareholders that an AOL transaction--even with a $35-a-share buyback--would be more attractive than Microsoft's offer.
"(Yahoo's) shares likely would pull back once the buyback is done," Bellini noted. "The (AOL) deal likely also includes outsourcing search to Google, which stands in stark contrast to management's strategy that combined search and display (advertising) are critical to long-term success."
As for a Microsoft-News Corp.-Yahoo deal, Bellini points out that the integration risks could outweigh any financial benefit the Redmond giant would receive by having News Corp. help offset some of the costs of a Yahoo acquisition.
Mark Mahaney, an analyst with Citi Investment Research, meanwhile, views Yahoo's Google announcement as an "aggressive response" to Microsoft's looming deadline and possible proxy fight.
"As such, we believe this will increase pressure on Microsoft to increase its $31 offer price," Mahaney said. "Arguably, a worst-case scenario for Microsoft would be a full Google search outsource decision by Yahoo."
- prev
- 1
- next
