Yahoo: No deal, Microsoft; Hello, Google
SAN FRANCISCO (AP) - June 12, 2008 But after eluding Microsoft's grasp, Yahoo is now turning to
Google to help squelch a rebellion among its shareholders who
believe it should have accepted Microsoft's $47.5 billion buyout
offer while it was still available last month.
Yahoo announced its decision to let Google handle some of its
advertising sales late Thursday, just a few hours after revealing
it unsuccessfully tried to persuade Microsoft to renew its previous
offer of $33 per share. The snub caused Yahoo to conclude that
there is no hope for any kind of deal with Microsoft.
Although Yahoo believes Google could help boost its annual
revenue by $800 million, the advertising partnership wasn't enough
to ease the disappointment of investors who had been holding out
hope for a Microsoft deal.
Yahoo shares plunged $2.63, or 10.1 percent, to finish Thursday
at $23.52 and shed another seven cents after the market closed.
Part of the problem for Yahoo is that antitrust concerns might
prevent an alliance with Google.
Google already holds about 75 percent of the $11 billion search
advertising market in the United States with Yahoo a distant second
at 9 percent, according to the research firm eMarketer Inc.
Microsoft and a variety of consumer-interest groups already have
signaled they will turn up the political heat in an attempt to
prevent Google from working with Yahoo.
The outcry already has drawn the attention of U.S. Sen. Herb
Kohl, chairman of the Senate subcommittee on antitrust, competition
policy and consumer rights.
"The consequences for advertisers and consumers could be
far-reaching and warrant careful review, and we plan to investigate
the competitive and privacy implications of this deal further,"
said Kohl, a Wisconsin Democrat.
Yahoo and Google have voluntarily agreed to wait until late
September to begin working together to give the government adequate
time to review the arrangement. If it isn't blocked, the
partnership could last for the next decade.
The antitrust scrutiny appears to be the least of Yahoo's
worries for now.
The Sunnyvale-based company also is trying to fend off a
shareholder mutiny led by activist investor Carl Icahn, who has
vowed to replace the company's board because of the way the
directors handled the Microsoft negotiations during the past 4½
months.
But Icahn has been hoping to engineer a sale to Microsoft, so
his campaign could be hurt by the perception that the software
maker has lost all interest in buying Yahoo. Shareholders may be
reluctant to support Icahn's attempted coup unless he can
demonstrate his slate of directors has a better turnaround plan
than the current board.
Icahn did not return phone calls seeking comment Thursday.
The fate of Yahoo's board is scheduled to be determined at the
company's Aug. 1 annual meeting.
"If you are a Yahoo shareholder, you just have to be scratching
your head right now," said Standard and Poor's equity analyst
Scott Kessler.
If Wall Street's backlash becomes severe enough, Kessler said he
believes Yahoo might have to consider replacing co-founder Jerry
Yang as its chief executive - something Icahn has already promised
he will do if he wins control of the board.
After Yang took over the reins from Terry Semel a year ago,
Yahoo's stock price fell from $28.12 to $19.18 at the time
Microsoft launched its unsolicited takeover attempt in January.
Yang "has been slow to move, slow to act and it has cost
shareholders as a result," Kessler said.
Many Yahoo shareholders blame Yang for letting his emotional
attachment blur his judgment during the Microsoft negotiations.
Yahoo's board sent Yang and fellow co-founder David Filo to a
pivotal May 3 meeting in Seattle to discuss Microsoft's oral offer
to buy the company for $33 per share, up from its initial bid of
$31 per share. After Yang demanded $37 per share, Microsoft CEO
Steve Ballmer withdrew the offer.
In recent weeks, Ballmer has been trying to buy Yahoo's search
engine instead.
Yahoo concluded that its search engine was too important to sell
piecemeal.
Without explaining its logic, Microsoft said it believed a deal
involving Yahoo's search engine would have been more valuable to
Yahoo than if it had bought the entire company at $33 per share.
The Redmond, Wash.-based software maker said it remains open to
buying Yahoo's search operations.
Yahoo's deal with Google includes an escape hatch should
Microsoft or another suitor buy the company. If Yahoo is sold,
Google would receive a termination fee of up to $250 million.
That clause could still raise hope that Icahn might be able to
renew the Microsoft talks if he can win control of Yahoo's board.
The deal shapes up as a major victory for Mountain View-based
Google, which didn't want Yahoo to fall into Microsoft's clutches.
"I am happy to be helping them to stay independent," Google
co-founder Sergey Brin said in a Thursday interview.
With a Yahoo deal off the table, Microsoft could set its sights
on a smaller acquisition that still might help its unprofitable
Internet operations. Analysts have cited Time Warner Inc.'s AOL,
Internet software service provider Salesforce.com Inc. and leading
online social networks, News Corp.'s MySpace and Facebook Inc. as
possible targets.
The Google partnership expands upon a two-week trial conducted
in April while Yahoo was trying to pressure Microsoft into raising
its bid. The tests confirmed Google's technology would generate
more revenue for Yahoo than its own system, which cost more than $2
billion to acquire and improve.
Nevertheless, Yahoo still intends to use its own search engine
to distribute some ads and process all search requests. Working
with Google will give Yahoo "the best of both worlds," Yahoo
President Sue Decker said a Thursday conference call.