“Yahoo is close to outsourcing its web search advertising to Google in a deal aimed at fending off Microsoft’s $44.6 billion bid to acquire Yahoo.”
San Francisco — Internet search engine Yahoo!, which remains the target of an unsolicited $44.6 billion hostile takeover bid by Microsoft, is reportedly moving closer to outsourcing its search advertising to Google Inc. as part of a two-pronged attempt to defend itself, after an initial test of the system yielded what the two firms deemed positive results, The Wall Street Journal reported, citing unnamed sources.
A trial run of the latest agreement, which would mean that Google will place the ads alongside search queries conducted by Yahoo! users, have yielded positive results, suggesting a wider roll-out may be imminent, according to the Wall Street Journal.
Google Inc.’s high ranking executive said on Thursday the company was very much excited to be testing out a partnership to run at least some of rival Yahoo Inc.’s Web search advertising sales.
At the same time, Google Chief Executive Eric Schmidt abruptly stopped short of characterizing how far negotiations with Yahoo had gone or how likely they were to lead to an actual business partnership.
A few say that the carefully planned tie-up is simply a course of action on Yahoo!’s part to taunt Microsoft, given that in the UK, for instance, it would consolidate more than four fifths of the search advertising market in one place, which would likely give rise to anti-trust issues.
But others say that a partnership would give Yahoo some needed leverage as it tries to ward off an unwelcome bid from Microsoft Corp., or at least force the latter to raise its $31-a-share offer.
Citigroup analyst Mark Mahaney considers such a deal may possibly increase Yahoo!’s cash flow by more than $1 billion a year because Google generates more revenue per query than Yahoo!
But a majority believes the possible deal as mere injustice, especially in view of antitrust concerns that a Google-Yahoo linkup would likely raise.
Yahoo! chief executive Jerry Yang is hoping to forge a deal to merge with Time Warner’s AOL, which would in return take a stake in Yahoo!
Hence, the joint website’s entire search advertising would then be handled by Google as a third-party provider. On the other hand, Yahoo! and Google need to be more careful to avoid the wrath of the powerful US competition regulators.
However, if Yahoo acknowledges Microsoft’s offer, it could just scuttle the deal with Google, people familiar with the matter told the Journal.
High ranking executives from Microsoft and Yahoo have met on at least two occasions but were unsuccessful in reaching an agreement on a framework for formal negotiations. Microsoft wishes Yahoo to make its call. But Yahoo has been reluctant to set a ceiling and wants Microsoft to raise its original offer before agreeing to talks, people familiar with the matter say.
Yahoo is scheduled to report its first-quarter earnings on April 22. A stronger-than-expected report could give Yahoo ammunition to argue that it should be valued at more than Microsoft has offered. Weaker results would bolster Microsoft’s argument that Yahoo’s value has fallen in the months since it first made its offer.
Yahoo has disapproved Microsoft’s offer, stating that the offer undervalues the company and that it wants the software company to raise its offer.
“But Microsoft, growing more impatient, has given Yahoo until April 26 to accept its offer or face a proxy fight.”
For now, hardly over a week left to go until the April 26 deadline set by Microsoft chief Steve Ballmer, after which he said he may lower his $31-a-share bid or take it direct to Yahoo! investors.
Yahoo declined to comment on the report. Google could not be reached for comment. However, the sources told the Journal that a Yahoo partnership with Google is now increasingly likely.
“Shares in Yahoo! fell 26 cents to $28.05 despite the news.”