San Francisco — Microsoft Corp.’s $44.6 billion takeover bid appears to have backed Yahoo Inc. into a corner, leaving the struggling Internet pioneer with the unpleasant choice of selling to a detested rival or pursuing other agonizing alternatives likely to require the help of an even fiercer foe, Google Inc.
“The Yahoo Board is undertaking a deliberate review process,” the company said.
“This will include evaluating all of the company’s strategic alternatives — including maintaining Yahoo as an independent company. A review process like this is fluid, and it can take quite a bit of time.”
At least that appeared to be the consensus emerging among analysts Monday as Wall Street awaited Yahoo’s response to last week’s unsolicited offer from Microsoft. Yahoo says its board is going to take its time reviewing Microsoft’s bid along with other options that could keep the Sunnyvale-based company independent.
“At the end of the day, I do not think they are going to be able to turn down Microsoft,” predicted technology investment banker Peter Falvey of Revolution Partners, echoing a widely held sentiment.
The offer represents a tempting 62% premium on Yahoo’s closing share price on Thursday.
Software giant Microsoft urged Yahoo to accept the offer it announced on Friday, adding it hopes to get a quick response from the major Internet player.
“We think it is a generous one,” Microsoft chief executive Steve Ballmer said Monday at the US firm’s annual conference with analysts in New York.
“We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path,” Ballmer said.
But if Yahoo spurns Microsoft, analysts believe it probably will have to swallow its pride and forge an advertising partnership with Google if the alliance could win antitrust clearance.
Under this scenario, Yahoo would rely on Google to run its search engine while joining thousands of other Web sites that depend on the Internet search leader for a steady stream of ad revenue generated from text-based links that produce commissions with every click.
Yahoo is a “complex company” with promising stakes in search engine Alibaba in China and Yahoo Japan that would have to be valued into an acquisition price, according to financial analysts.
“Yahoo boasts more than 500 million users worldwide and launched a new advertising platform last year.”
The list of so-called “white knights” willing to come to Yahoo’s rescue appears to be dwindling. Several of the most logical candidates, including News Corp., AT&T Inc. and Comcast Corp., reportedly have no interest in trying to top Microsoft’s bid.
The threat posed by a Microsoft-Yahoo combination continued to hurt Google’s shares, which fell $20.47 to finish at $495.43. The decline left Google’s stock price 34 percent below its peak of $747.24 reached three months ago.
Merrill Lynch analyst Justin Post believes Yahoo should dangle the prospect of a Google partnership to persuade Microsoft to raise its bid and then accept the higher offer.
While a Google partnership could boost Yahoo’s revenue by $500 million to $600 million annually, Post said Yahoo’s brand would be better off with Microsoft. “It seems to us Google has its, not Yahoo’s, best interests in mind,” Post said.
Yahoo remains tight-lipped, only going so far as to repeat that its board “is carefully and thoroughly evaluating the Microsoft proposal in the context of all of the company’s strategic alternatives.”
“Talk of a potentially Internet-altering merger between Yahoo and Microsoft has ricocheted online since the world’s leading software maker announced a bid for the Internet portal in a strategy aimed at competing with Google.”
“We wanted this offer to be attractive to Yahoo shareholders,” said Chris Liddell, Microsoft’s chief financial officer.
Yahoo also possesses an anti-takeover provision, known as a “poison pill,” that could be used to issue millions of new shares to make an acquisition prohibitively expensive. Triggering the poison pill almost certainly would infuriate already testy shareholders.
“Sooner or later, I suspect this is going to be taken directly to Yahoo shareholders,” Standard & Poor’s equity analyst Scott Kessler predicted. “And those shareholders are very disappointed with management’s execution and the company’s financial performance.”
Turning over search and a big chunk of advertising would be a humbling step for Yahoo. The company has invested more than $2 billion to develop its own search technology and adjoining advertising system during the past five years in a largely fruitless attempt to catch Google, whose success is one of the reasons that Yahoo’s profits have declined for five straight quarters.
Even if Yahoo decided to work with Google again, the partnership might face antitrust obstacles, given that the two companies together control nearly 80 percent of the U.S. search market.
Microsoft, with just an 8 percent share of the U.S. search market, almost certainly would raise antitrust alarms if Google took over Yahoo’s search engine, just as Google is already pushing regulators to take a hard look at Microsoft’s takeover plans.