Web companies fight over Yahoo

 

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By Reuters

Posted on 10 Apr 2008 at 07:39

Yahoo, which is widely believed to be running out of alternatives to accepting Microsoft's takeover offer, has become a target of two warring camps of technology giants and their media allies, sources say.

News Corp, the current owner of MySpace, is considering joining Microsoft in a bid for Yahoo which would create a more formidable rival to internet juggernaut Google, newspaper reports say.

But Yahoo, which announced plans to test Google search ads alongside Yahoo web search services, is closing in on a deal with Time Warner to merge with its AOL unit, several sources claim.

The game of musical chairs among the titans of the internet follows two years of on-again, off-again talks to strike industry-reshaping mergers among different configurations of the same players.

Google, unaccustomed to being backfooted by its rivals, is considered a secondary player unlikely to enter the merger bidding as its growing dominance in Web search and search-based advertising could be blocked by competition regulators.

"The whole situation seems to be very unstable," says Sanford C Bernstein analyst Jeffrey Lindsay, adding that Microsoft's bid for Yahoo precipitated a cascade of offers.

"There are so many pent-up moves for consolidation but it's hard to say what moves will be successful," Lindsay says.

Reports were sketchy on exactly how a Microsoft deal with News Corp might be structured, making Wall Street analysts reluctant to speculate on which combination might prove the superior offer.

But several agreed that Yahoo has regained some of the negotiating momentum it appeared to have lost with Microsoft.

Yahoo's talks with Time Warner are getting near to a deal that would fold AOL's business, excluding its legacy dial-up internet access operations, into a combined Yahoo company, a person familiar with the talks says. Such a deal would value AOL at £5.1 billion, the source claims.

Yahoo would receive cash from Time Warner in exchange for 20% of a combined Yahoo-AOL. Other sources confirmed the outlines of the talks but provided no further details.

The Wall Street Journal cited sources saying Yahoo would use the Time Warner cash and other funds to buy back several billion dollars worth of Yahoo stock at a price somewhere between $30 and $40 a share.

The New York Times reported that Microsoft had begun talks to bring News Corp in on its effort to acquire Yahoo.

This combination would bring together three of the biggest Web site publishers on the Internet; Yahoo, Microsoft's MSN and News Corp's MySpace, creating a formidable counterweight to web pacesetter Google, but also drawing antitrust scrutiny.

Yahoo said it was beginning a two-week test on whether it can use Google to sell ads alongside Yahoo Web search services. The initial test is small, covering only 3% of web searches performed on Yahoo, the companies claim.