Jerry Finally Gets Busy: Now Yahoo Could Hook Up With AOL

Posted by: Rob Hof on April 9, 2008

After all these weeks and months of trying to find alternatives to Microsoft’s bear hug, finally Yahoo seems to have gotten a move on. Just hours after announcing plans for a test run of Google ads on its search results, Yahoo apparently is close to a deal to combine forces with Time Warner’s AOL unit. The news broke in a story in the Wall Street Journal, but I’ve confirmed with a person close to the situation that a deal could happen.

As if that weren’t enough, now the New York Times is reporting that News Corp. may join Microsoft’s bid for Yahoo. The talks are said to be at an early stage, but if the deal ended up involving News offering cash along with its Fox Interactive Media unit, which includes MySpace, the combination could prove irresistible to Yahoo shareholders.

There are some clear advantages to both Yahoo and AOL to join forces, as Henry Blodget at Silicon Alley Insider has noted. They’re each struggling vs. Google on their own, and together they could not only save a lot of money—perhaps $1 billion by combining operations—but they would present an even more formidable online presence. What’s more, Google, which owns 5% of AOL, already handles AOL’s search ads, so an expanded deal with the combined entity would be a relatively simple matter. According to the Journal, terms so far call for Time Warner to fold AOL into Yahoo, making a cash investment for 20% of the combined entity. As part of the deal, Yahoo would repurchase several billion dollars worth of its own stock, presumably to mollify its shareholders, who have been expecting a Microsoft deal to happen.

However, whether all this WILL happen is another matter entirely. Not all the details have been worked out, for one. More important, Yahoo knows there’s no guarantee shareholders will go for a messy, three-piece deal with several moving parts, one that offers much less of a sure thing than Microsoft’s $42 billion offer.

So it still seems likely, even after all these gyrations, that Yahoo ultimately will end up in Microsoft’s embrace, probably with a little extra thrown in by Microsoft to counter the perception that Yahoo actually has an alternative.

Even so, this is the first time since Microsoft’s Jan. 31 bid that it looks like there’s more than a ghost of a chance Yahoo could remain independent. Perhaps all the folks who thought Yahoo CEO and its board were sad sacks, sitting on their thumbs and unable to grub up any kind of alternative partnership to stave off Microsoft or at least force it to hike its initial bid, will have to rethink their view.

Why did it take so long to put together deals that have been rumored or suggested for months, even years? Clearly, somebody—maybe Microsoft CEO Steve Ballmer with his letter last weekend, who knows?—clearly lit a fire under Yahoo.

Even if the AOL/Google deals happen, though, you have to wonder where it gets Yahoo. A marriage with AOL and a concession of search advertising to Google doesn’t exactly sound like independence to me.

One thing amid all this merger mess you can probably count on: Yahoo’s stock price is headed up. That may be what Yahoo’s board—which, after Microsoft’s bid, can’t have realistically thought the company could remain completely independent—really wanted all along.

Reader Comments

PacificGatePost

April 10, 2008 2:18 AM

AOL is not Yahoo's salvation by any means.

http://pacificgatepost.blogspot.com/2008/04/microsoft-yahoo-and-rest-of-us.html

Yang should get some new advisors. Then look for some enlightened strategies ... even just a little creative... not panic driven.

Post a comment

 

About

Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

Categories

 

BW Mall - Sponsored Links

Buy a link now!