The Future of Yahoo!

Last week Microsoft made an unsolicited offer to acquire Yahoo! with an initial asking price of $31/per share which was about 62% higher than the January 31st closing price. On Wednesday, Yahoo CEO Jerry Yang sent an internal e-mail seeking to keep the company’s employees focused on its strategy despite the uncertainty created by Microsoft’s unsolicited acquisition bid. Also on Wednesday, The Wall Street Journal reported that a merger involving Yahoo! and Google would be unlikely due to anti-trust (only Microsoft can get away with anti-trust, at least in the US) and regulatory concerns.

To add even more mystery to this possible acquisition, Microsoft is not discussing with the public anything about the integration process should the deal go through. Further they are not saying anything to their employees nor will they answer any questions as to what stays and goes. For example would Microsoft continue using the Live Mail or would they switch to Yahoo’s Mail? Would they use the MSN Portal or Yahoo! Portal? Those questions remained unanswered by Kevin Johnson, president of Microsoft’s Platforms & Services Division.

On Friday a student watching remotely the company’s Minority Student Day, asked “What will Microsoft gain from purchasing Yahoo…” Steve Ballmer after saying at least three times ‘it was a good question’ replied:

There’s really three large players in the online world, and yet when you stop and look at it from a revenue perspective increasingly there’s just one strong player, and if you actually look at it, most of what people do online is very fragmented. It’s not like people spend most of their time at MSN or Yahoo or Google or anyplace else. So the Web is kinda big. Some things are a little concentrated, but from a revenue and sales standpoint of advertising, Google is really the big guy out there.

What our goal is, is to provide, what I would say, great innovation and great competition, particularly in the search and advertising area, to Google. … There’s already about $40 billion a year sold in search advertising, and in our desire to be a world leader in Internet search and Internet advertising, it helps us a lot to acquire Yahoo.

That response almost makes it sound like Microsoft wants Yahoo for the search advertising and would just scrap everything else mail, portal, maps and/or Foxy Tunes just so they could compete with Google. I hadn’t really paid much attention to this possible merger/acquisition/integration or whatever you want to call it, until gialloporpora commented on the FoxyTunes Acquired article from earlier this week.

Today both The New York Times and The Wall Street Journal citing anonymous sources, report Yahoo is going to reject the offer. This offer “massively undervalues” Yahoo and “does not account for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators.” Yahoo board plans to inform Microsoft on Monday of their position, which as the Wall Street Journal has reported: not to consider any offers below $40 per share. Note: on Friday, February 8th Yahoo’s (YHOO) stock closed at $29.20 while Microsoft’s (MSFT) closed at $28.56 per share. There is still talk Yahoo may allow itself to be acquired enter into a partnership with Google as a way to fend off Microsoft.

Either way Google or Microsoft, I just can’t see this happening. Even if Yahoo agrees on a price chances are the deal would be tied up with regulators for a long, long time. Microsoft is no stranger to anti-trust claims, especially in the EU which is where I have feeling this could really get tied up. Further I would think trying to ‘partner’ would Google would raise even more red flags with regulators being the two have such similar products, services, technologies, etc. However it would be quite ironic if Google did ‘partner’ with Yahoo as the tag line on the FoxyTunes Acquired article was ‘And No, It Was Not By Google!’