Microsoft Continues To Court Yahoo!

Microsoft, the world’s biggest software maker is so much in love with Yahoo that it seems to be paving the way for a takeover of Yahoo.

It is common knowledge that Steve Ballmer, the chief executive office at Microsoft gave Yahoo a deadline to accept their $44.6 billion bid; however they Yahoo was not keen on going through with the deal and had not responded to Microsoft.

Microsoft is weighing the two options left for them – to let go or begin a hostile takeover battle. If they decide on fighting the crucial point is what they are going to offer the shareholders, whether they are going to stick to the original bid or increase the bid to win the shareholders over.

Microsoft has been looking to gain more foothold of the internet advertising market, with more searches, sell advertisements with more videos and graphics, and this is currently dominated by Google. The only way they can do this with the help of Yahoo and this is the reason Microsoft just cannot afford to let Yahoo go.

Having spent a billion dollars creating a web search engine and technology to sell ads, buying internet companies such as Yahoo and AQuantive would give Microsoft the prestigious No.2 spot in the $41 billion online ad market.

If we compare Google and Microsoft, while Microsoft faced losses of $228 million at Redmond, which is Microsoft’s Washington based internet business with sales of $843 million; Google, owner of the most used internet search engine had $3.7 billion in revenue, excluding the sales passed on to partner sites.

Google is much ahead of them because internet is all about advertising, and advertising linked to search results accounts for more than half of internet ad sales. According to researcher ComScore, Google handled six times more queries in the US in March than Microsoft.

Analysts say, “Microsoft is committed to completing the transaction and is unlikely to walk away from the deal.”

Unless Jerry Yang, Yahoo CEO does something to boost his company’s shares, he has a good chance that he might have to let go of Yahoo. Most of the stock at Yahoo is held by arbitragers, who would happily accept $31, according to Walter price, portfolio manager, whose firm owns shares in Microsoft and Yahoo.

Ballmer said that their offer is quite generous. He said, “By this point if they don’t agree we would have to take our arguments directly to the shareholders. We will see what they do, and we will move appropriately at that point.”

The only two options that Microsoft has are to walk away or start a proxy fight. If they walk away, they will have to build their web unit without California-based Yahoo, using their other investments and partnerships.

Yahoo has said repeatedly that it is worth much more, citing its investments in Asia, the company’s No. 2 position in internet searches and potential cost savings of the deal. Looking for an alternative, Yahoo approached rivals such as Time Warner’s AOL, about a combination.

Although Microsoft indicated last week that they will not raise the offer, analysts believe that there is every chance they would. They believe, “Microsoft does need Yahoo.”

Heather Bellini, an analyst at UBS AG in New York says, Even if Microsoft tried to lower the value of the deal or walk away, we would expect them to eventually come back and raise it in order to consummate the transaction in a friendly manner.”

As days go by in the battle of the titans, some analysts observe changes in Yahoo’s thinking. They believe that the equation may have changed and Yahoo may return to the bargaining table when the seat is still warm. Yahoo CEO, Yang was against an acquisition initially, but with the stumbling share prices and grumbling shareholders, he said in an interview that he and the board members were willing to sell Yahoo to Microsoft or anyone else for that matter, if they are offered the right price. He also said that Microsoft walked away from the deal and not Yahoo and they are still willing to negotiate.

Yahoo President Sue Decker also hinted in an interview that Yahoo might still be open to a deal, and also said that this deal could prove to be mutually beneficial to both companies. She said, “When you stack up Microsoft’s assets and Yahoo’s assets, there are certainly some real reasons why the combined company could be really successful.”’

A realization that both the companies need each other may unite them eventually and if this deal goes through, it will be the largest corporate takeover in American corporate history.

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