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Microsoft eyes Yahoo to topple Google
Microsoft eyes Yahoo to topple Google
By MICHAEL LIEDTKE, AP Business Writer
2 minutes ago
Unable to topple Google Inc. on its own, Microsoft Corp. is trying to force crippled rival Yahoo Inc. into a shotgun marriage, with a wager worth nearly $42 billion that the two companies together will have a better chance of tackling the Internet search leader.
Microsoft's audacious attempt to buy Yahoo, spelled out in an unsolicited offer announced Friday, shows just how much Google threatens the world's largest software maker's grip on how people interact with computers.
For Yahoo, the bid represents another painful reminder of how missed opportunities and mismanagement combined to open the door for Google to supplant it as the Internet's main gateway, decimating its stock price in the process.
Redmond, Wash.-based Microsoft is trying to avoid a similar fate at Google's hands as more people access services and computer programs online instead of relying on packaged software applications.
Although Microsoft remains the world's most valuable technology company, its position will become more precarious unless it can cultivate a more loyal Internet audience and generate more online ad revenue to subsidize the free services taken for granted on the Internet.
Microsoft is acutely aware of the upheaval that can be caused by a pivotal shift in technology, having been the biggest beneficiary during the 1980s and 1990s of a transition from mainframe computers to personal computers that knocked IBM Corp. off its pedestal.
"Microsoft has to do this deal. It's a battle that Microsoft needs to win," said AMR Research analyst Jonathan Yarmis.
But there's no guarantee that Yahoo will be willing to sell to Microsoft — or that the deal will win the necessary approvals from antitrust regulators in the United States and Europe if Yahoo capitulates.
Sunnyvale-based Yahoo had little to say Friday beyond a terse statement assuring its shareholders that its board will "carefully and promptly" study the bid.
In a conference call Friday, Microsoft Chief Executive Steve Ballmer indicated he won't take no for an answer after Yahoo rebuffed takeover overtures a year ago.
"This is a decision we have — and I have — thought long and hard about," Ballmer said. "We are confident it's the right path for Microsoft and Yahoo."
Yahoo will likely face intense pressure to accept, given its steadily sliding profits and a murky 2008 outlook that caused its stock price to drop to a four-year low earlier this week.
Microsoft's $31-per-share offer — originally valued at $44.6 billion — represented a 62 percent premium to Yahoo's closing price late Thursday, although it's below Yahoo's 52-week high of $34.08 reached less than four months ago. On Friday, the total value of the cash-and-stock deal fell to $41.7 billion, or $28.95 per share, because Microsoft's shares declined on the news.
Yahoo shares soared to a split-adjusted high of $118.75 in 2000 before the dot-com bust. That peak coincidentally also was just before Yahoo gave Google its first big break by hiring it to run its search engine.
Search engines are crucial tools because they have become a central hub in hugely profitable ad networks.
Advertisers around the world are expected to double their spending on the Internet during the next three years as more people get their news and entertainment on the Web instead of television, radio, newspapers and magazines. The trend is expected to create an $80 billion online ad market in 2010, up from an estimated $40 billion last year.
After realizing how much money Google was making from search, Yahoo introduced its own technology in 2004, but by then it was too little, too late.
Forrester Research analyst Charlene Li expects Yahoo to resist, predicting the company "will do everything possible to stay independent," even if it means swallowing its pride and rehiring Google to run its search engine and sell ads on its site.
Other analysts still think Yahoo might try to line up a white knight rather than fall into Microsoft's clutches. Analysts mentioned several other potential suitors, including News Corp. and InterActiveCorp.
Dinosaur Securities analyst David Garrity even thinks it's possible that China's search leader, Baidu.com Inc., or Chinese e-commerce conglomerate Alibaba.com Inc. might bid for Yahoo. Alibaba.com is 40 percent owned by Yahoo.
In what most analysts regard as a long shot, there was even some chatter that longtime Microsoft rival Apple Inc. and its CEO, Steve Jobs, might come to Yahoo's rescue.
If push comes to shove, most analysts believe Microsoft will raise its cash-and-stock bid.
Investors appear confident an agreement eventually will be reached. Yahoo shares climbed $9.20, or nearly 48 percent, to $28.38 while Microsoft shares fell $2.15, or 6.6 percent, to $30.45 — a sign that Wall Street is skeptical about whether the acquisition makes sense.
"It's a classic case of a buyer overbidding to blow any potential competitors out of the water," said James Owers, a Georgia State University professor of corporate finance.
Shortly after Microsoft disclosed its intentions, the U.S. Justice Department said it is "interested" in reviewing antitrust issues. European Union officials declined to comment, but analysts said Microsoft probably will face more challenges getting a Yahoo acquisition approved in Europe than the United States.
Microsoft made its offer a few hours after Yahoo's chairman, Terry Semel, stepped down, removing a potential stumbling block. Semel had rejected Microsoft's takeover overtures a year ago while he was still Yahoo's chief executive, according to a letter released Friday.
Yahoo co-founder Jerry Yang replaced Semel as CEO nearly eight months ago while another Yahoo director, Roy Bostock, is now chairman.
Yang, a billionaire who is one of Yahoo's largest shareholders, isn't believed to have warm and fuzzy feelings about Microsoft. He has openly expressed his admiration for Jobs and last year even invited the Apple CEO to Yahoo's headquarters for a pep talk with employees.
Microsoft believes its technological expertise will be a good fit with Yahoo's knack for providing content and services that keep people coming back to its site. Combined, the two companies would reach a U.S. online audience of 142 million compared with 124 million for Google, according to Nielsen Online.
But Yahoo and Microsoft are so far behind Google in the lucrative search market that they still will have a lot of ground to make up even if they joined forces.
Google already controls 62 percent of the worldwide search market, and has been widening its lead, according to the latest data from comScore Media Metrix. By combining, Microsoft and Yahoo would have a 16 percent share of the worldwide search market, the Web traffic tracking company said.
Google shares fell $48.40, or 8.6 percent, to close at $515.90 Friday, but the downturn appeared to be driven more by a disappointing fourth-quarter earnings report than by Microsoft's bid for Yahoo.
Besides helping to boost its online ad revenue, Microsoft believes it could mine more profit from Yahoo by jettisoning workers and eliminating overlapping operations.
Microsoft said it sees at least $1 billion in cost savings if it buys Yahoo. Microsoft executives deflected questions about how many jobs might be lost, but the company emphasized retention packages will be offered to Yahoo engineers and other key employees, including some executives.
The fate of Yahoo's brand also is unclear if Microsoft takes over. Both Ballmer and Kevin Johnson, president of Microsoft's platforms and services division, hailed Yahoo's strong brand value but did not commit to keeping the name alive.
___
AP Business Writer Jennifer Malloy in New York and AP Business Writer Jessica Mintz in Seattle contributed to this story.
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Microsoft-Yahoo combo could reshape Web
Microsoft-Yahoo combo could reshape Web
By BRIAN BERGSTEIN, AP Technology Writer
Sat Feb 2, 1:34 AM ET
A combination of Microsoft and Yahoo could reshape the Internet landscape for millions of Web users: Would the two companies join their online portals? Could they rethink the desktop computer to integrate Web content more directly?
The changes are potentially huge, but probably not in the short term.
Microsoft executives did not indicate Friday exactly what they would do with Yahoo's brand if their bid, now valued at $42 billion, is accepted. But analysts expect the combined companies to preserve many of their separate free services, like instant-messaging and e-mail programs.
A more likely medium-term change is that some of Microsoft's Web content could fade away or get added to Yahoo, which has a vast collection of news and features aggregated from other providers.
Microsoft's Web properties, including its Yahoo-like MSN portal, aren't exactly slouches: They rank third, trailing only Yahoo and Google, in total visitors. But while Yahoo still is profitable, Microsoft's online services are a consistent money loser. The MSN search engine is a laggard, even with recent efforts to soup it up under Microsoft's online umbrella it calls "Live."
Having Yahoo in its tent could give Microsoft a rationalization for abandoning its unprofitable online elements.
"I think MSN folds into Yahoo," said Ian Campbell, CEO of Nucleus Research. "It would be foolish to keep that separate."
Perhaps the biggest change Microsoft and Yahoo could achieve together would be creating a better way to combine the Web and desktop computing — not to mention cell phones, TVs, cars and any other gadgets that might someday plug into the Internet.
Consumers who access the Web on cell phones and handheld computers might be the first to find something new as a result of a Microsoft-Yahoo combination. Devices that run Microsoft's Windows Mobile operating system could be better integrated with Yahoo content and possibly yield new services, like social networking functions.
New ideas will be key to compete with Google's Web presence. After all, people don't "Microsoft" or "Yahoo" anything. Microsoft in particular tends to be tolerated more than loved. Google is also leading development of an alternative cell-phone operating system it calls Android.
Eventually, a teamed-up Yahoo and Microsoft might be able to rethink the PC desktop — where Windows still runs 90 percent of the world's PCs — so that Internet data such as stock prices, sports scores and weather are automatically baked in.
"We all have our home page because we have a concept of a home page," Campbell said. Before long, "we may not have a home page — it might just be the background of my desktop. There's no reason why Microsoft can't push this another level."
Microsoft might also use Yahoo's online strengths to galvanize Web-based versions of some of its powerful desktop software applications, like Word and Excel.
Open-source rivals and Google are threatening to bite into Microsoft's lucrative Office software franchise with free versions of those kinds of "productivity" software. Microsoft is developing Web-based versions of its own, but slowly.
Now Yahoo could be the face through which Microsoft offers those online applications. Perhaps one day a Microsoft-fueled package of "Yahoo Apps" will go up against "Google Apps."
Even with these possibilities, analyst David Mitchell Smith, a vice president at Gartner Inc., believes the biggest change from a Microsoft-Yahoo deal probably will be the one most Web surfers don't notice. That will come as the companies try to broaden their ability to deliver ads all over the Internet, wherever it reaches.
It's necessary because being the most popular online destination — as Yahoo already is — is no longer enough. The explosion of blogs, video sites and other user-generated content has made our Internet travels more wide-ranging. As a result, the biggest Internet companies now need their ad networks to reach far beyond their home portals. Google has mastered that. Microsoft and Yahoo have not.
"I think that's really what it's all about," Smith said. "It's about advertising. It's about search."
(This version CORRECTS value of bid to billion sted million; CLARIFIES that deal is now worth 42, not 45, billion.)
I think MS will get Yahoo and ultimately the deal will be good for all three, including Google. Competition like that is to be admired and applauded because we will all win in the end!
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Yahoo board to spurn $44B Microsoft bid
Yahoo board to spurn $44B Microsoft bid
By MICHAEL LIEDTKE, AP Business Writer
Sun Feb 10, 7:45 AM ET
Yahoo Inc.'s board will reject Microsoft Corp.'s $44.6 billion takeover bid after concluding the unsolicited offer undervalues the slumping Internet pioneer, a person familiar with the situation said Saturday.
The decision could provoke a showdown between two of the world's most prominent technology companies with Internet search leader Google Inc. looming in the background. Leery of Microsoft expanding its turf on the Internet, Google already has offered to help Yahoo avert a takeover and urged antitrust regulators to take a hard look at the proposed deal.
If the world's largest software maker wants Yahoo badly enough, Microsoft could try to override Yahoo's board by taking its offer — originally valued at $31 per share — directly to the shareholders. Pursuing that risky route probably will require Microsoft to attempt to oust Yahoo's current 10-member board.
Alternatively, Microsoft could sweeten its bid. Many analysts believe Microsoft is prepared to offer as much as $35 per share for Yahoo, which still boasts one of the Internet's largest audiences and most powerful advertising vehicles despite a prolonged slump that has hammered its stock.
Yahoo's board reached the decision after exploring a wide variety of alternatives during the past week, according to the person who spoke to The Associated Press. The person didn't want to be identified because the reasons for Yahoo's rebuff won't be officially spelled out until Monday morning.
Microsoft and Yahoo declined to comment Saturday on the decision, first reported by The Wall Street Journal on its Web site.
Yahoo's board concluded Microsoft's offer is inadequate even though the company couldn't find any other potential bidders willing to offer a higher price.
Without other suitors on the horizon, Yahoo has had little choice but to turn a cold shoulder toward Microsoft if the board hopes to fulfill its responsibility to fetch the highest price possible for the company, said technology investment banker Ken Marlin.
"You would expect Yahoo's board to reject Microsoft at first," Marlin said. "If they didn't, they would be accused of malfeasance."
But by spurning Microsoft, Yahoo risks further alienating shareholders already upset about management missteps that have led to five consecutive quarters of declining profits.
The downturn caused Yahoo's stock price to plummet by more than 40 percent, erasing about $20 billion in shareholder wealth, in the three months leading up to Microsoft's bid.
Seizing on an opportunity to expand its clout on the Internet, Microsoft dangled a takeover offer that was 62 percent above Yahoo's stock price of just $19.18 when the bid was announced Feb. 1. Yahoo shares ended the past week at $29.20.
Led by company co-founder and board member Jerry Yang, Yahoo now will be under intense pressure to lay out a strategy that will prevent its stock price from collapsing again. What's more, Yang and the rest of the management team must convince Wall Street that they can boost Yahoo's market value beyond Microsoft's offer.
Yahoo's shares traded at $31 as recently as November, but have eroded steadily amid concerns about the slowing economy and frustration with the slow pace of a turnaround that Yang promised last June when he replaced former movie studio mogul Terry Semel as Yahoo's chief executive officer.
This isn't the first time that Yahoo has spurned Microsoft. The Redmond, Wash.-based company offered $40 per share to buy Yahoo a year ago only to be shooed away by Semel, according to a person familiar with the matter. The person didn't want to be identified because that bid was never made public.
Yahoo now may want that Microsoft to raise its price to at least $40 per share again. That would force Microsoft to raise its current offer by about $12 billion — a high price that might alarm its own shareholders.
Microsoft's stock price already has slid 12 percent since the company announced its Yahoo bid, reflecting concerns about the deal bogging down amid potential management distractions, sagging employee morale and other headaches that frequently arise when two big companies are combined.
Although it isn't involved directly in the deal, Google is the main reason Yahoo is being pursued by Microsoft.
Yahoo has struggled largely because it hasn't been able to target online ads as effectively as Google.
Microsoft believes Yahoo's brand, engineers, audience and services will provide the company with valuable weapons in its so far unsuccessful attempt to narrow Google's huge lead in the lucrative Internet search and advertising markets.
As it examined ways to thwart Microsoft, Yahoo considered an advertising partnership with Google — an alliance long favored by analysts who believe it would boost the profits of both companies. It was unclear Saturday if Yahoo's plans for boosting its stock price include a Google partnership, which would probably face antitrust issues.
A Microsoft takeover of Yahoo would also be scrutinized by antitrust regulators in the United States and Europe. The antitrust uncertainties could be cited as one of the reasons that Yahoo's board decided to spurn Microsoft.
I wonder if this was postponed/blown off by Yahoo due to issues of culture shock...I seriously doubt the people that got Yahoo where they are today are there because Microsoft didn't want them; nor would many of them relish the thought of being Microsoft employees. Without those highly principled and finicky coders, Yahoo isn't the same company.
I wonder if this was postponed/blown off by Yahoo due to issues of culture shock...I seriously doubt the people that got Yahoo where they are today are there because Microsoft didn't want them; nor would many of them relish the thought of being Microsoft employees. Without those highly principled and finicky coders, Yahoo isn't the same company.
You aren't referring to the same Yahoo whores who purchased Overture, are you?
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Am I missing something?.
MS needs to create their own search engine other than MSN. Something fresh, flashy and kid friendly. Why buy dead horse Yahoo?
they can't even compete.
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