Jul 4, 2008

Business - Don't say goodbye to Microhoo just yet

You didn’t think it was over, did you? As Yahoo's stock has fallen dangerously low -- almost to sub-$20 levels that preceded Microsoft's takeover bid back in February -- Microsoft is looking for partners to help it break up Yahoo so that it can nab its search business, according to a report in the Wall Street Journal. The story cites AOL and News Corp., two businesses floated as potential Yahoo bidders back in the spring.
The story, which chronicles many of the details of the five-month-long saga, is heavily couched and says that "some of the people familiar with these talks say they are preliminary and unlikely to result in a deal with Yahoo". And it reports that a meeting between Microsoft CEO Steve Ballmer and Yahoo Chairman Roy Bostock was canceled, which could mean no partners had been found.
In a demonstration of how desperate Yahoo investors are for good news, the company's beleaguered stock jumped about 8 per cent to almost $22 after the story broke.
Search-focused all along?
In recent weeks Yahoo has raised doubts that Microsoft ever wanted to buy it in its entirety, suggesting that all Microsoft was interested in was Yahoo's search business, which is the only way Microsoft would be able to challenge the scale of rival Google in that space -- although Microhoo would still only equal half of Google's search share.
For buyers, combining Microsoft's and Yahoo's search businesses would be a more welcome scenario than the current ties between Google and Yahoo. How would a Microhoo work, given Yahoo's recent pact to let Google sell some search advertising on queries generated on Yahoo and by Yahoo partners? Well, that deal has several outs, including one relating to change of ownership by Yahoo. While there would be a $250 million charge paid to Google, that's chump change for Microsoft if it can finally get what it wants out of the deal.
It's true Microsoft, which has a healthy display ad business and ad-serving and ad-management technologies, doesn't need the half of Yahoo that isn't search, and buying the whole thing would make integration much more challenging. If Microsoft can find other interested parties to unload Yahoo's display-ad business, it would come out of what has been a disastrous quest to goose its online business looking like the winner.

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