Microsoft set to pounce if Yahoo/Google deal flops

 

Gallery

By Barry Collins and Reuters

Posted on 5 Nov 2008 at 08:46

The new search advertising deal between Yahoo and Google is unlikely to win US antitrust approval, opening the door to a new bid for Yahoo from Microsoft.

Under the revised deal the two companies have proposed to the Justice Department, Yahoo and Google significantly scaled back the scope of their agreement, including shortening the length of the partnership from ten to two years.

Sanford Bernstein analyst Jeffrey Lindsay calls the revised offer a "desperate gambit." He expects the Justice Department to defer a decision until next year, and expects the agreement to eventually fall apart.

Should that happen, Microsoft might renew its effort for Yahoo with an offer of around $20 a share, Lindsay claims. Microsoft had offered as much as $33 per share for Yahoo earlier this year.

"We expect the DoJ to defer a decision to next year and believe it is preparing for an antitrust showdown with Google," Lindsay claims. "We expect the Google-Yahoo deal to founder, leaving Yahoo unable to acquire AOL's portal and stuck in a standalone value trap."

Yahoo has been in talks with Time Warner about the advertising and content assets of AOL.

Former rogue investor, now Yahoo board member, Carl Icahn has once again urged the search company to strike a deal with Microsoft this week.

"I have said publicly and will continue to say it... I believe, as a large shareholder... that eventually Yahoo should, if it's available, make a deal with Microsoft to sell the search business," he said.