HYIP-Man: Microsoft, Yahoo Discussed Deal
Saturday, May 05, 2007
Microsoft, Yahoo Discussed Deal
Recent talks between Microsoft Corp. and Yahoo Inc. over how to band together betray increasing unrest at Microsoft over how to compete with Google Inc. and get in step with the booming online-advertising market.
 
Microsoft and Yahoo discussed a possible merger or other matchup that would pair their respective strengths, say people familiar with the situation. The merger discussions are no longer active, these people say, but that doesn't preclude the two companies from some other form of cooperation.
Whatever the outcome, Microsoft's online division could be heading for a shake-up, say people familiar with the situation. Failure by the Redmond, Wash., company to make better headway against Google in Internet search, combined with Microsoft losing a deal to Google last month to buy online-advertising specialist DoubleClick, has spurred Microsoft Chief Executive Steve Ballmer to consider new action, these people say. Mr. Ballmer's frustration with the group's progress has been "palpable," said a person familiar with the company.
Among Mr. Ballmer's options are installing new management to the online group, a fix that Microsoft has often used in the past. Also, unifying now-separate groups is an option. Currently, Microsoft's online group's services and the technology that underlies them are managed by different vice presidents, an arrangement that some in the group say hinders its ability to compete more effectively.
Another option for Microsoft is to form a partnership with Yahoo. The two companies had worked together before; Yahoo previously provided Microsoft with search technology and advertising. Microsoft broke off that relationship last year, as it phased in its own online-ad system, which has yet to attract a critical mass of advertisers. The two companies also explored the idea of combining to form a greater competitor to Google a year ago, though those talks led nowhere.
 
For now, Yahoo doesn't appear interested in a major deal with Microsoft, say people familiar with the situation. The Sunnyvale, Calif., Internet company's course may largely depend on a new advertising-system upgrade, called "Project Panama," whose delay last year prompted criticisms from investors and others that were directed toward the company's management. Panama is now running, and Yahoo said recently that it expects the system to contribute to its revenue, starting this quarter.
 
Microsoft and Yahoo spokesmen declined to comment. Recent talks between the companies were reported in the New York Post Friday.
 
Still, Microsoft has technical expertise that might benefit Yahoo. Under one possible scenario, Microsoft could manage the technical platform and infrastructure of the companies' combined Internet activities, while Yahoo's current staff could oversee the consumer parts of the businesses, such as Yahoo News, Finance and email. Yahoo is one of the world's most popular Web sites, attracting millions of consumers a day to services, which in turn attract advertisers.
 
While Yahoo is facing increased competition to sell advertisers the graphical-display ads, such as banners, that have been its bread and butter, the company recently has shown signs of momentum. Yahoo has signed partner sites to carry ads that it brokers, including 12 newspaper-publishing companies representing more than 264 newspapers, and the Web portal of Comcast Corp. On Monday, it announced a $680 million deal to buy the 80% of online-ad exchange operator Right Media Inc. that it didn't already own.
If merger talks are revived, whether Microsoft and Yahoo could reach an agreement remains as much of a question as it did a year ago, when similar talks ended inconclusively. Microsoft has always steered clear of large acquisitions. Yahoo has about 11,700 employees and earlier this week had a market value of about $38 billion. Yahoo shares surged $2.80, or 9.9%, to $30.98 in 4 p.m. Nasdaq Stock Market composite trading on news of the talks, raising the company's market value to around $42 billion Friday. Microsoft's shares fell 41 cents to $30.56 on Nasdaq.
 
Short of a wholesale merger, Microsoft could spin its online group into a separately run Yahoo in return for a Yahoo stake. Yet top Yahoo executives could be a big obstacle to any deal. They believe they have found the right strategy and are wary of any combination with Microsoft, for whom Internet activities remain only a small part of its business, says one person familiar with the matter. Top Yahoo staff might leave if Microsoft acquired the company and triggered a vesting of their Yahoo options.
 
Any integration of the two companies' operations would also be a daunting prospect. Yahoo has in recent years faced criticism, including from within, that it has been slow and hasn't held executives responsible for poor performance. It revamped its corporate structure and shuffled executives in December, in an apparent response.
 
TALE OF THE TAPE
Although Microsoft dwarfs Yahoo and Google, a small portion
 of the software giant's business comes from the Internet.
 

 

Microsoft 

 YAHOO!

 Google

Market value (5/3/07)  

 $296 billion

 $38 billion

 $147 billion

 Employees

 76,500

11,700 

 12,200

 Fiscal 2006 Revenue

 $44.28 billion

 $6.43 billion

 $10.6 billion

 2006 Online Ad Revenue*

 $2.29 billion

 $4.56 billion

 $7.3 billion

 Headquarters

 Redmond, Wash.

Sunnyvale, Calif.

 Mountain View, Calif.

 Year Founded

1975 

 1994

 1998

*Reflects Microsoft's MSN division and excludes marketing
commissions for Yahoo and Google.
Source: WSJ.com research

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Written at 12:33 PM by Frank.
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