Microsoft wants Yahoo Search
2008-05-20 07:19
Boston - Microsoft Corp has proposed to
buy Yahoo Inc's search business and take a minority stake in
the web pioneer, stopping short of a full-out merger, a person
familiar with the discussions said on Monday.
As part of the deal, Yahoo would sell its Asian assets
including significant minority stakes in Yahoo Japan and
China's Alibaba Group, while Microsoft would buy a chunk of
what remains of the company, the source said.
The talks were revealed by the two companies on Sunday, but
they declined to reveal the terms of the discussions. Earlier
this month, Microsoft walked away from a proposal to acquire
Yahoo for $47.5bn, or $33 per share, after Yahoo rebuffed
the offer, saying it would only settle for $37 a share.
The new deal, if completed, would forge an alliance between
the two companies that would represent an alternative means of
competing with rival Google, whose ubiquitous search engine
has made it an online advertising powerhouse.
The proposal represents an outline of Microsoft's current
thinking and it does not yet put a value on Yahoo's search
business, said the source, who was not authorised to speak on
the record because the discussions are confidential.
Microsoft and Yahoo representatives declined to comment.
Collins Stewart analyst Sandeep Aggarwal estimates Yahoo's
search advertising business is worth about $21bn, while
putting the value of its international assets at $9.25bn, according to a research note he published on Monday.
"Microsoft is the most interested in Yahoo Search," said
Aggarwal, who added that Microsoft may buy parts of Yahoo for a
premium or buy all of Yahoo and then spin off certain assets.
Microsoft said on Sunday that it was talking with Yahoo
about an alternative transaction that did not involve a full
buyout after withdrawing its sweetened $47.5bn bid for
the company on May 3.
Chasing Google
Yahoo is a distant second to Google Inc in Web search in
the United States, and Microsoft is third.
Combined, Yahoo and Microsoft would have around a 30%
US share, compared with Google's roughly 60%,
according to figures from research firm comScore. Google's lead
is even larger on a global basis, according to comScore.
The proposal from Microsoft would likely complicate ongoing
discussions between Yahoo and Google. The two companies are
still talking about a possible search advertising partnership,
people familiar with those discussions have told Reuters.
Talks between Yahoo and Microsoft resumed after Microsoft
insisted for two weeks that it had moved on from its pursuit of
Yahoo, prompting shareholders of the web company to criticise
its board for mishandling negotiations.
Financier Carl Icahn launched a proxy fight last week to
force Yahoo to reopen talks with Microsoft. Icahn, who owns
nearly 10 million Yahoo shares as well as options to acquire
another 49 million shares, formally filed on Monday the
preliminary proxy to nominate 10 directors to Yahoo's board.
A person familiar with Icahn's thinking said on Sunday that
an alternative deal for Yahoo, rather than a full acquisition,
would prompt the investor to push Yahoo to do a deal with
Google. Icahn did not comment on the talks between Microsoft
and Yahoo in his filing on Monday.
For its part, Alibaba, the private holding company whose
assets include Alibaba.com Ltd, has been lining up investors to
help it buy back the Yahoo stake, sources told Reuters
earlier.
Yahoo's core franchise stems from the roughly 500 million
web users who pass through its network of internet media
properties each month. Major attractions include Yahoo Mail,
news, sports, entertainment and its Flickr.com photo site.
It generates most of its revenue through sales of display
advertising to those visitors, as well as making an increasing
push to sell ads on non-Yahoo sites. As the No 2 provider of
web search services, Yahoo also sells ads alongside search
results and on a variety of affiliated sites.