Huge Appetites or the Heat in the Battle for Yahoo!
April 14, 2008
We have witnessed a dynamic week rich in events revolving
around Yahoo’s future. The beginning was set on April 5th when the software
giant Microsoft sent to Yahoo!’s board of directors a hostile letter. In it Microsoft
urged Yahoo! to accept its $41 billion buyout offer within the next three weeks.
Otherwise the software maker threatened with a hostile takeover at a less
“If we have not concluded an agreement within the next three
weeks, we will be compelled to take our case directly to your shareholders, including
the initiation of a proxy contest to elect an alternative slate of directors
for the Yahoo! board”, wrote Microsoft
Chief Executive Steve Ballmer.
"If we are forced to take an offer directly to your
shareholders, that action will have an undesirable impact on the value of your
company from our perspective which will be reflected in the terms of our
proposal," he further wrote.
On Monday, Yahoo! wrote back that the company didn’t oppose to
a transaction with Microsoft but the offered price should fully reflect the
value of Yahoo!, including any strategic benefits to Microsoft."
Then, Yahoo made explicit signs for its decisiveness to
explore all strategic options. But how much successful could be Yahoo! in its
efforts to establish more favorable alliance in the current situation?
On one hand, Yahoo! and Time Warner’s AOL are negotiating to
combine their Internet operation. The AOL-Yahoo deal would include the
repurchase of some Yahoo shares at a price above Microsoft’s offer.
On the other hand, on Wednesday Yahoo announced an agreement
with Google for conducting a test of Google AdSense for Search service. But is
it possible Yahoo’s test to grow into an advertising pact with Google? This option
could give Yahoo another alternative to the Microsoft takeover. Or at least to
give Yahoo more reasons to hold its ground for a higher price from Microsoft.
"Yahoo will be testing Google's AdSense for Search
service, which will deliver relevant ads alongside Yahoo's own natural search
results," said Google in a statement. "This is only a limited test
and does not necessarily mean that Yahoo will join the AdSense program."
Yahoo said the test would continue two weeks and would involve
no more than 3% of Yahoo's Web search queries. It is designed to evaluate the
revenue potential of a broader search ad sales outsourcing arrangement. Analysts
predict that outsourcing its search ads to Google would boost Yahoo's cash flow.
The software giant took an immediate stand.
"Any definitive agreement between Yahoo and Google would
consolidate over 90% of the search advertising market in Google's hands,"
said Microsoft in a statement. "This would make the market far less
Microsoft also added, "Our proposal remains the only
alternative put forward that offers Yahoo shareholders full and fair value for
At the same time, Microsoft and News Corporation are
negotiating to consolidate their forces in a joint bid for Yahoo. If they
managed to acquire Yahoo, this three-way alliance would create a huge one-stop
shop for online advertisers and bring together some of the largest players in
the social networking, online news and email, according to The Wall Street
Analysts also anticipate Yahoo to eventually lose this
battle. As Yahoo! considers to be undervalued by Microsoft, the company is now struggling
to either reject the current offer which it will most probably have to finally accept
or is just trying to boost it. The
denouement is yet to come.
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