Sunday, November 30, 2008

Microsoft Bidding for Yahoo!'s Search Business: Report (Update: Nah)

A little over a month ago Microsoft CEO Steve Ballmer said a Yahoo! deal still "makes sense," but that same afternoon, a Microsoft press release quashed any speculation by saying there were "no discussions between the companies."

A report in the Sunday edition of the Times Online is set to re-ignite that speculation.

The report lists, well, no sources at all, not even anonymous ones. It states that the deal will consist of Microsoft acquiring a 10-year operating agreement to manage the Yahoo! search business, with a two-year call option to buy the business for $20 billion. There is no chance of a complete acquisition of the company. The report goes on to say:
The proposal forms the centrepiece of a complex transaction that would see Microsoft support a new management team to take control of Yahoo. But there is no intention of Microsoft tabling another takeover bid for the web giant, after its aborted $47.5 billion offer this summer.

It is thought that Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, have been lined up to lead the new management team. Senior directors at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed.
Aha, no guarantee it will succeed. Another unsubstantiated rumor that will lead to nowhere for Yahoo!?

Still, it's true that billionaire Carl Icahn, now on the Yahoo! board of directors since nearly starting a proxy fight after the Microsoft deal was rejected by Yahoo!, has recently increased his stake in Yahoo!, buying another 6.8 million shares. Mere dollar cost averaging? He couldn't have made his deal with any knowledge of a Microsoft deal without facing an "insider trading" charge by the SEC.

I'm extremely skeptical based on Icahn's move. Another, more mathematical reason: Yahoo!'s current market capitalization at its price of $11.51 is $16 billion. How could you spend $20 billion for just a piece of the company?

Still. Barron's interview (subscription required) with Icahn indicated he felt that Yahoo! needs to complete a search deal with Microsoft.

The rejection of the Microsoft offer has, in fact, been called by some the "worst decision ever." It seems like a reasonable offer now would almost certainly be accepted. But will even that sort of deal give Microsoft a leg up on Google?

Update: I was pretty skeptical, as I wrote above. Multiple sources have confirmed with no less than Levinsohn himself that it's pure fiction.

As I said, the Icahn buy alone would prevent such a deal from going forward, unless he wants to join Mark Cuban in the SEC's doghouse.

So where did the Times Online get this info? As I said, the original story didn't even cite "anonymous sources." At any rate, many believe this sort of deal is what Yahoo! needs to survive. Still more to come.



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