Sunnyvale, California — Shares of Sunnyvale, California based, Yahoo Inc. gained more than 7% in Nasdaq trading on Monday, amid speculation late last week that the company is in serious discussions with Redmond’s software giant Microsoft Corp. about a possible search and online-advertising partnerships.
The Wall Street Journal and The AllThingsD blog reported Friday that Yahoo’s Chief Executive Carol Bartz and Microsoft’s CEO Steve Ballmer have been discussing the possibility of commercial integration between the two companies in the future, including the possibility that Yahoo would assume responsibility for sales of the companies’ display advertising, and similarly Microsoft would assume responsibility for their search advertising business.
Yahoo would contribute so much as $450 million a year to earnings by combining its search engine with that of Microsoft, according to Sanford C. Bernstein & Co. analyst Jeffrey Lindsay. Yahoo and Microsoft are brooding over a deal, All Things Digital reported April 10, citing people familiar with the situation.
Yahoo and Microsoft are competing with Google Inc. for a larger share of the slowing Web-advertising market. Yahoo spurned Microsoft’s takeover offer of around $47.5 billion last year. Microsoft Chief Executive Officer Steve Ballmer said last month that the two companies should combine resources. Yahoo chief Carol Bartz has said that any negotiations would be private.
“Microsoft is desperate,” said Lindsay, who rates Yahoo shares “market perform.” Bartz will probably be able to squeeze “top dollar” from Microsoft, the New York-based analyst said.
Stifel Nicolaus analyst George Askew told clients in a note Monday that a partnership with Microsoft would “be very positive for Yahoo,” adding that Yahoo’s “scale and sales” make a good match for Microsoft’s “technology expertise and deep pockets.”
Yahoo investors appreciated the productive re-engagement between Yahoo and Microsoft, which has been lingering since a tense takeover effort by the software giant of Yahoo went south last year.
Yahoo gained 95 cents to $14.42 in Nasdaq Stock Market trading at 4 p.m. New York time. Microsoft fell 8 cents to $19.59, while Google advanced $5.61 to $378.11. U.S. markets were closed April 10 for a holiday.
Kim Rubey, a spokeswoman for Sunnyvale, California-based Yahoo, and Frank Shaw, a spokesman for Redmond, Washington-based Microsoft, declined to comment.
Analysts weighing a deal between Microsoft and Yahoo would make sense, but said any collaboration would have to benefit Yahoo shareholders and help better position Microsoft in the online-search market.
“It is not a surprise, and our view of it is that it is highly likely a deal is going to happen or Microsoft will acquire Yahoo,” Lindsay said in a statement. “The reason is that Yahoo is still performing quite well in display and also in page search despite the downturn. Performance was not brilliant, but it is not bad, either, whereas Microsoft’s performance online was dreadful.”