Yahoo! likely to rebuff Microsoft and look for more 'compatible' suitors

11 February 2008

Mumbai: A revival of possible merger talks with Time Warner Company AOL (America Online) is the most likely outcome of Microsoft's $44.6 billion bid for the internet company.

Reports have indicated that besides finding the Microsoft offer undervaluing the company, Yahoo! has spent much of the past week along with advisors Goldman Sachs and Lehman Brothers to look at possible tie-ups with other media and technology firms that will give it options to Microsoft's offer.

A return to the discussion table with AOL is the most likely event, with other suitors being Google, or Disney. Yahoo! and AOL could not previously agree on price, though they now hope to resolve that stale mate given the urgency from Microsoft's unsolicited advances, and an upcoming economic downturn. Google has a five per cent stake in AOL.

For Yahoo! to even consider speaking to Microsoft on the subject, the Windows giant will have to up its offer by 'at least' $12 billion, which would take the offer to $46.6 billion, and representing a share price value of more than $40.

Media reports indicate that Yahoo! decided to spurn Microsoft's advances at a meeting of its board on 8 February. The rejection is likely to draw some shock and awe in its own right, given that Microsoft's proposed bid values Yahoo! 62 per cent higher than its closing price on 31 January, and may signal that CEO Yang would like to tell shareholders to hang on to the company while he increases its value by a minimum of 62 per cent. That would be no mean task, after eight consecutive quarters of profit decline, and a chunk of its $40 billion online advertising market to Google, its dominant rival who would now want to seen as saviour.

For Google, the biggest nightmare is that in buying Yahoo, Microsoft could be in a position to repeat the pattern of the 1990s, which was when it used its dominance of personal computing software to usurp control of the early Web software markets, such as browsers, and media players. With Yahoo! swallowed, Microsoft would command an 80 per cent share of consumer e-mail accounts on the web, and instant messaging.