Yahoo Explores Tie-Up With Murdoch’s News Corp.
Merger talk restarts after hiccup…
“In the latest twist in the Yahoo saga, News Corp. is taking a second look at a possible deal with the online giant just days after chairman and CEO Rupert Murdoch said he had no interest in an outright acquisition of Yahoo…”
New York — Yahoo is exploring a possible alliance with media conglomerate News Corp. to stave off a take-over by software giant Microsoft; The Wall Street Journal reported on Wednesday.
“The real question is: What would Yahoo get out of a partnership with News Corp., other than bitter heartache when the relationship sours?”
Terms of a transaction have not been set, said the person, who asked not to be identified because the talks are private. Rupert Murdoch’s News Corp. would get a stake in Yahoo that could be more than 20 percent, according to a Wall Street Journal report. The deal would include a cash contribution from News Corp. and a buyout firm, the newspaper said.
Under the agreement, News Corp.’s MySpace, the most popular social-networking site and other properties would be combined with Yahoo.
Such an alliance would enable Yahoo to maintain its independence, while bolstering News Corp.’s online advertising assets and thwart a hostile takeover by Microsoft, which has vowed to continue its bid to buy the company despite Yahoo rejecting a 44.6-billion-dollar offer on Monday.
“Yahoo rejected the bid from Microsoft, saying the offer did not reflect its value.”
“It could make sense in some form,” David Joyce, an analyst with Miller Tabak & Co. in New York, said in an interview. “They could gain more access to the overall ad industry on the Web this way.”
Industry observers expressed some reservations about such a deal, noting that News Corp. still has to digest the recent acquisition of financial news provider Dow Jones, which Murdoch last week said is his biggest near-term priority. However, many believe the talks could move Microsoft to sweeten its takeover bid.
“Rupert Murdoch’s News Corp. owns the Journal, as well a global media empire that includes popular online social networking website MySpace, Dow Jones, Fox News, and 20th Century Fox.”
A deal with Yahoo would mark a turnaround from Murdoch’s previous comments. On a Feb. 4 conference call, he said News Corp. is not interested in buying Yahoo.
When asked whether he would pursue a combination of MySpace and Yahoo, he said, “I think that, that has passed, but you never know,” according to a Bloomberg transcript. He also said it is an “exaggeration” to say the two companies had been in talks about such an agreement.
News Corp., based in New York, and Sunnyvale, California- based Yahoo have spoken several times in the past 18 months about a combination, the newspaper said.
Yahoo maintains it is looking into many strategic alternatives to being gobbled up by Microsoft, which wants to merge the two companies’ resources to better challenge Internet colossus Google.
“Analysts caution that alliance talks with News Corp. could be part of a strategy by Yahoo to pressure Microsoft into upping its offer.”
Yahoo’s board rejected the Microsoft offer of 31 dollars per share as too low and reportedly thinks the firm is worth at least 40 dollars per share.
“We do not believe that News Corp. would augment the value of its Internet properties by merging its assets into Yahoo,” Cowen Analyst Jim Friedland said in a research note published by Thompson Financial.
“We believe News Corp. would be ill-served by trading one of its most valuable growth assets for a non-controlling stake in a struggling company.”
News Corp.-owned Fox Interactive Media would not fix flaws in Yahoo’s operations and the Sunnyvale, California-based company does not need a cash infusion, according to Friedland.
Although News Corp. CEO Rupert Murdoch has shown a keen interest in the internet — as evidenced by his $580 million acquisition of MySpace — we remain highly skeptical of the reports:
“One source Wednesday confirmed that Murdoch’s media conglomerate has restarted talks about possibly merging its Fox Interactive Media unit –which houses MySpace and IGN — with Yahoo and taking a stake of 20%-25% in the combined entity.”
“Buying a stake in Yahoo is a pretty pricey way for News Corp. to grow its online presence. There also has been talk about a possible cash injection from an unnamed private-equity firm.”
The talks were first reported by the blog TechCrunch, which said the investment by News Corp. and a private equity fund into Yahoo might be $15 billion.
News Corp. spokeswoman Julie Henderson declined to comment. A Yahoo spokeswoman Tracy Schmaler said, “Yahoo’s board is carefully and thoroughly evaluating all of the company’s strategic alternatives and will pursue the best course of action to maximize long-term value.” She declined to comment on News Corp.
And while the deal could, theoretically, stave off a hostile bid from Microsoft; it would not help Yahoo grow its search business, which is one of its biggest problems at the moment.
“A News Corp. deal would do nothing to solve Yahoo’s decline in search market share,” says Kevin Lee, executive chairman of Didit, an online advertising buyer. “It would allow Yahoo to create a larger display advertising property, but Yahoo already has more than enough of that inventory. I’m having a hard time understanding why this deal would happen.”
Yahoo is also reportedly in alliance talks with faded Internet search start America On Line (AOL), now owned by Time Warner.
Yahoo is evidently “floating ideas” to gain leverage in negotiations with Microsoft, according to analysts.
“Yahoo is trying to improve their bargaining position right now,” analyst Rob Enderle of Enderle Group in Silicon Valley, said in a statement.
Yahoo’s search for other bidders may be part of a plan to get Redmond, Washington-based Microsoft to raise its price, analysts including Stanford Group Co.’s Clayton Moran said.
“This could be an attempt to use News Corp. as a pawn,” Michael Nathanson, an analyst at Sanford C. Bernstein & Co. in New York, said in an e-mail.
Whether Microsoft ups the ante or goes hostile hinges on what institutional share holders want, and indications are they are reluctant to raise the offer for Yahoo, principal analyst Matt Rosoff of Directions on Microsoft, said in a statement.