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Yahoo says 'No' to Microsoft, 'Yes' to Google

Latest update : 2008-06-13

Yahoo has issued a firm no to Microsoft’s latest offer to buy part of the search engine company, instead unveiling an ad deal with its arch-rival Google – after months of talks.

The suspense over the vaunted Yahoo-Microsoft deal may be over – for now.

On Thursday, Microsoft revealed the details of its latest offer for Yahoo, the world’s second-ranked search engine. In May, Microsoft had offered to buy all of Yahoo for $47.5 billion, or $33 per share, but the Yahoo board turned the offer down. In the new proposal, Microsoft proposed buying Yahoo’s search engine business plus 16% of the company.  

But the new offer went nowhere. Yahoo immediately rejected the proposal, saying Microsoft’s new offer for a partial takeover would “leave the company without an independent search business that it views as critical to its strategic future.” This proved the final straw for Yahoo, which said that all talks with Microsoft on a takeover or partial acquisition "have concluded."

The same day, Yahoo announced that it had established a non-exclusive partnership with its chief competitor, the top-ranked search engine Google. The deal involves ad-sharing – Yahoo will use Google’s superior technology to get more revenue from the ads it runs next to its search results. This would not involve eclipsing Yahoo, rebranding, or changing its fundamental format.  The deal would allow the Number 1 and Number 2 search engines to combine efforts in selling ads to the highest bidder.

Yahoo predicted the ad-sharing deal would add $800 million to the company’s annual revenues. It is a badly-needed boost for Yahoo; since its equivocations with Microsoft began, Yahoo shares have dropped 10% in value.

Yahoo and Google have agreed to a three-and-a-half month waiting period to allow for regulatory approval, and for the construction of a get-out clause in the event that another company makes a takeover bid for Yahoo.

Both of these elements have financial analysts worrying.  Google dominates US search engine use, with 60% of the US market in May; Yahoo had 21%. Combined efforts could pose antitrust issues. Yahoo has told the press that it is already cooperating with the US Department of Justice – which has had Yahoo under close scrutiny since the beginning of Microsoft-Yahoo talks in February.

But is there a chance Microsoft and Yahoo could reopen talks? “Who knows?,” says Douglas Herbert, FRANCE 24’s business editor. “Maybe Yahoo is hoping it can leverage its deal with Google to get a better offer from Microsoft. It’s never over until it’s over.”

Date created : 2008-06-13

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