Tuesday, January 17, 2012

Yahoo and Microsoft Again

There is a scramble on for Yahoo (Nasdaq: YHOO). The company has entered talks with at least two private equity firms – Silver Lake and TPG – among others.

Let's not forget too there is also Jack Ma and his company, Alibaba, which is looking to break its ties with Yahoo, even if it involves buying out the company. It said that he and Softbank, Yahoo's partner in Japan, may make a joint bid for Yahoo.

Back in 2005, Yahoo acquired a 42% stake in the Chinese e-commerce company. A recent private equity investment valued Alibaba at $32 billion, so Yahoo's Alibaba stake is one of the few jewels left in its crown.

The corporate melee over Yahoo was triggered several months ago by the firing of CEO Carol Bartz and the news that Yahoo was considering strategic options for the company.

These options initially concerned only plans for turning around the company, but they have quickly expanded. Options now include sale of its Asian operations or even the entire company.

So with Yahoo back in play, one question investors are asking is whether Microsoft (Nasdaq: MSFT) should take another run at the company.

As investors will recall, Microsoft attempted a takeover of Yahoo in 2008 at $33 a share, but its bid collapsed. Sadly for Yahoo investors, that price is more than twice the current stock price.

Microsoft blamed the breakdown of the talks on Yahoo co-founder Jerry Yang who kept holding out for a higher price. The Yahoo side blamed Microsoft CEO Steve Ballmer who they say simply walked away from the deal.

After that very public and unpleasant experience, it is very doubtful that Microsoft would launch another bid for all of Yahoo.

However, it does seem to be taking an interest in Yahoo again. The reasoning is that, at the least, Microsoft wants a seat at the table when Yahoo's fate is decided so it can protect the relationship it has with Yahoo.

Microsoft has an alliance with Yahoo where it outsources its internet search business to Microsoft. Some analysts estimate this business alone accounts for half of the value of Yahoo's core operations, excluding the company's operations in China and Japan. So it is not surprising that Microsoft is trying to protect its interests.

But perhaps Microsoft has something else in mind.

A full merger of its MSN online service with Yahoo could be advantageous. It would bring together two complimentary and well-known internet properties. The cost savings will be meaningful, even for a giant like Microsoft. And in today's smartphone and tablet-centric world, it may create a powerful portal through which content can be distributed.

Microsoft may also be interested in Yahoo's presence in China through Alibaba. But with Jack Ma battling so fiercely for his independence from Yahoo, it is doubtful he will want to tie up with another American tech giant.

The final outcome in the scramble for Yahoo is anybody's guess right now. But most likely Alibaba and Softbank will gain their independence, while Microsoft is a main contender for the rest of Yahoo.

This article originally appeared on the Motley Fool Blog Network. Please check out all my articles there at http://blogs.fool.com/tdalmoe/


  1. I would have to say yahoo finance is good if you are looking for a snapshot of a companies finances. But for more detailed information you need to read the 10 Q and 10 K's. Their are links to company websites on yahoo financial so you can find pretty much everything you need to know about a company. Yahoo finance does provide some excellent information on their website. The problem with yahoo is its all free and this could change. I recently saw that they changed their website layout and its not for the better. I believe that the website will soon begin charging for much of the information that they provide. I think its a great Idea to look for an alternative.

  2. I believe a combination between microsoft and yahoo would be a bad idea. Economies of scale do not work that well when it comes to technology companies.