LEX As Yahoo attempts to deflect Microsoft’s unsolicited $43bn bid, it may find it has few options other than trying to climb into bed with one bitter enemy to escape the embrace of another. Microsoft’s offer, a low-ball bid relative to Yahoo’s share price only a few months ago, represented a 62 per cent premium to its beaten-down valuation by the time it was announced last week. The proposed deal, hardly a sure-fire winner, is reminiscent of Time Warner’s defensive move to merge with AOL in an attempt to catch up with stronger internet competitors. But for Yahoo’s shareholders, the bloom is already off the rose. At the price Microsoft is offering, those who have been disappointed by Yahoo’s slow turnround would be justified in taking the bait.
With Yahoo scrambling to stay independent, its best hope may lie in help from Google. Google has proved far more adept than Yahoo at generating revenue from internet search traffic and investors have called for Yahoo to ditch its own search advertising operation and outsource the business to Google. Yahoo has stuck with search advertising thus far. But an outsourcing deal may now seem appealing, with a Microsoft takeover as the alternative. Whether such a deal would work, however, would depend both on Google’s willingness to participate and on Microsoft’s chances of success in lobbying against it on regulatory grounds.
