Details Emerge in New Microsoft/Yahoo! Talks

Microsoft's renewed interest in Yahoo! this week appears to have been driven by Yahoo!'s discussions with market leader Google. In order to stave off a possible Google/Yahoo! alliance, Microsoft has reportedly bid to purchase Yahoo!'s search business, a move that would effectively split Yahoo! into two smaller companies.

Purchasing just Yahoo! Search makes a lot more sense than purchasing Yahoo! outright and is likely the primary reason Microsoft pursued Yahoo! in the first place. According to sources close to the negotiations, Microsoft would like to purchase Yahoo! Search and then make a minority investment in what remains of Yahoo! after Search is split out. As part of the deal, Yahoo! would also sell off its Asian assets, including its stakes in Yahoo! Japan and China-based Alibaba Group.

Microsoft has yet to place a value on Yahoo! Search, though it would presumably be a significant percentage of the $47.5 billion the company originally offered for all of Yahoo!. A combination of Microsoft and Yahoo! search efforts would create a stronger new number two player in that market: Google currently controls about 60 percent of the search market compared to about 30 percent for a combined Microsoft and Yahoo!.

Microsoft's unexpected new attempt at a Yahoo! alliance comes in the wake of financial maneuvers by billionaire investor Carl Icahn, who threatened to launch a proxy battle for Yahoo!'s board of directors if the company didn't restart its Microsoft merger talks. Yahoo! reacted negatively to Icahn's offer, but admitted over the weekend that it was indeed now talking to Microsoft again.

Details aside, it's unlikely that Yahoo!'s board will agree to spinning off its most valuable asset. Microsoft's immediate goal, however, is to simply prevent Yahoo! from consummating its proposed alliance with Google. If that deal goes through, Yahoo! would outsource part of its Web advertising efforts to Google, a move that would raise antitrust concerns but also diminish the value of Yahoo!'s own technologies.

From a broader perspective, Microsoft's recent assertions that it has "moved on" in the wake of its aborted Yahoo! takeover are clearly untrue. It appears that Microsoft's Plan B is lot more like Plan A than originally thought.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.