Microhoo Aftermath, Take Two

Late last week, Microsoft's second round of discussions with struggling Internet giant Yahoo concluded with the same result as the initial takeover offer: The two companies are going their separate ways, unable to reach an agreement. But that's not the only similarity between the two periods of Microsoft/Yahoo talks. As was the case the first time around, it's becoming clear that Yahoo was never particularly interested in a deal, while Microsoft went the extra mile--and made incredible concessions--in order to work something out.

By the time last week had ended, Yahoo had suddenly and unceremoniously announced that talks with Microsoft had concluded. Then, just hours later, Yahoo announced that it would pull the trigger on its ill-conceived Plan-B, in which it outsources part of its search operations to Web search market leader Google.

As it turns out, the Microsoft offer that Yahoo rejected was far greater than previously rumored. Microsoft offered $9 billion to Yahoo while promising to add $1 billion in operating revenues to Yahoo this first year alone. The offer was divided up between a $1 billion sale of Yahoo's search unit and an $8 billion investment in Yahoo, which Microsoft valued at $35 a share.

"This partnership would have created a stronger competitor to Google, providing greater choice and innovation for advertisers, publishers and consumers," Microsoft president Kevin Johnson told employees via email. But Yahoo rejected the offer because it believed the offer undervalued both the company and its search unit. Plus, it would have locked Yahoo into a 10-year exclusive agreement.

The current Google agreement is non-exclusive, meanwhile, but it provides Yahoo with just $800 million a year in sales and obviously doesn't come with an additional $9 billion in cash. Because of the antitrust implications of the dominant market leader helping a second-tier player, Yahoo can't begin outsourcing search to Google for two to three months so that the US Department of Justice (DOJ) can look over the deal.

Microsoft, of course, is back to square one, again. Johnson noted in his email to employees that the company would succeed in building its online business regardless and hinted at some coming announcements in July at two internal company events. Meanwhile, the company has also reached out to lobbying groups in Washington D.C., hoping to derail the Google/Yahoo deal by describing it as anticompetitive.

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.