Yahoo turning to Google
2008-06-13 07:21
San Francisco - Yahoo Inc became Microsoft Corp's takeover prey largely because Google Inc established such a commanding lead in the internet's lucrative search advertising market.
But after eluding Microsoft's grasp, Yahoo is now turning to Google to help squelch a rebellion among its shareholders who believe it should have accepted Microsoft's $47.5bn buyout offer while it was still available last month.
Yahoo announced its decision to let Google handle some of its advertising sales late on Thursday, just a few hours after revealing it unsuccessfully tried to persuade Microsoft to renew its previous offer of $33 per share. The snub caused Yahoo to conclude that there is no hope for any kind of deal with Microsoft.
Although Yahoo believes Google could help boost its annual revenue by $800m, the advertising partnership wasn't enough to ease the disappointment of investors who had been holding out hope for a Microsoft deal.
Yahoo shares plunged $2.63, or 10.1%, to finish Thursday at $23.52 and shed another seven cents after the market closed.
Part of the problem for Yahoo is that antitrust concerns might prevent an alliance with Google.
Google already holds about 75% of the $11bn search advertising market in the United States with Yahoo a distant second at nine percent, according to the research firm eMarketer Inc.
Microsoft and a variety of consumer-interest groups already have signalled they will turn up the political heat in an attempt to prevent Google from working with Yahoo.
The outcry already has drawn the attention of US Sen Herb Kohl, chairperson of the Senate subcommittee on antitrust, competition policy and consumer rights.
Least of Yahoo's worries
"The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further," said Kohl, a Wisconsin Democrat.
Yahoo and Google have voluntarily agreed to wait until late September to begin working together to give the government adequate time to review the arrangement. If it isn't blocked, the partnership could last for the next decade.
The antitrust scrutiny appears to be the least of Yahoo's worries for now.
The Sunnyvale-based company also is trying to fend off a shareholder mutiny led by activist investor Carl Icahn, who has vowed to replace the company's board because of the way the directors handled the Microsoft negotiations during the past four months.
But Icahn has been hoping to engineer a sale to Microsoft, so his campaign could be hurt by the perception that the software maker has lost all interest in buying Yahoo. Shareholders may be reluctant to support Icahn's attempted coup unless he can demonstrate his slate of directors has a better turnaround plan than the current board.
Icahn did not return phone calls seeking comment on Thursday.
The fate of Yahoo's board is scheduled to be determined at the company's August 1 annual meeting.
"If you are a Yahoo shareholder, you just have to be scratching your head right now," said Standard and Poor's equity analyst Scott Kessler.
If Wall Street's backlash becomes severe enough, Kessler said he believes Yahoo might have to consider replacing co-founder Jerry Yang as its chief executive - something Icahn has already promised he will do if he wins control of the board.
- AP