Yahoo is Close to Combining with AOL
April 9 (Bloomberg) — Yahoo! Inc., fending off Microsoft Corp.’s $44.6 billion acquisition offer, is close to striking an agreement to combine operations with Time Warner Inc.’s AOL unit, a person familiar with the situation said.
Yahoo would gain control of AOL, receive an investment from Time Warner, and give up a 20 percent stake in the combined entity, said the person, who asked not to be identified because the talks aren’t public. The investment would let Yahoo buy back billions of dollars of its own stock, the person said.
A linkup may increase pressure on Microsoft to raise its $31-a-share bid, rejected by Yahoo in February as too low. Yahoo said today it will test Google Inc.’s advertising technology, which may boost sales from links that appear next to Web search results. Last week, Microsoft threatened a proxy fight to take control of Yahoo’s board if no agreement is reached.
“They’re delay tactics,” Laura Martin, an analyst at New York-based Soleil Securities Corp., said of Yahoo’s actions. She rates Yahoo shares “hold” and doesn’t own any. “They’re just going to irritate Microsoft and accelerate a proxy fight.”
Diana Wong, a spokeswoman for Sunnyvale, California-based Yahoo, didn’t immediately return a call for comment. Time Warner spokesman Ed Adler declined to comment.
Alternatives
The talks with AOL and Google, owner of the most-used Internet search engine, indicate that Yahoo Chief Executive Officer Jerry Yang is making progress with discussions two months after telling investors that the company is seeking alternatives to Microsoft’s bid. Microsoft’s offer was 62 percent higher than Yahoo’s closing price the previous day.
Yahoo, owner of the most-visited U.S. Web site, rose 7 cents to $27.77 at 4 p.m. New York time on the Nasdaq Stock Market. After jumping 48 percent on Feb. 1, the day after Microsoft’s bid, the stock has declined 2.1 percent.
Time Warner, the world’s largest media company, fell 30 cents to $14.43 in New York Stock Exchange composite trading. Shares of the New York-based have declined 13 percent this year.
Separately, the New York Times reported that News Corp. is in talks to join Microsoft’s bid for Yahoo, citing people involved in the discussions. The deal would combine Yahoo, Microsoft’s MSN and News Corp.’s MySpace, the newspaper said.
Microsoft spokesman Frank Shaw didn’t immediately return a call seeking comment. Teri Everett, a spokeswoman for New York- based News Corp., said the company doesn’t comment on “speculation.”
Challenging Google
Microsoft, the world’s largest software maker, is pursuing Yahoo to challenge Google’s dominance of the $41 billion online ad market. Yahoo responded to Microsoft’s threat of a proxy fight by insisting on a higher price before an acquisition can take place.
A combination with AOL would bring together the second and fourth most-used Internet search engines in the U.S. Google is the most-popular, attracting 59.2 percent of queries in February, according to Reston, Virginia-based researcher ComScore Inc. Yahoo had 21.6 percent, followed by Microsoft with 9.6 percent and AOL with 4.9 percent.
Unable to catch Google in search, Yahoo said today that it’s starting a two-week trial in the U.S. to run its rival’s ads alongside no more than 3 percent of search queries.
Yahoo and Google have been here before. In 2000, Yahoo chose Google as its default search engine, an agreement that lasted until 2003. Yahoo’s then-CEO Terry Semel orchestrated the acquisitions of Inktomi Corp. and Overture Services Inc. to build a new search service.
Yahoo’s Panama
Last year, Yahoo introduced an ad platform, called Panama, designed to make search ads more relevant and more likely to be clicked. In a presentation to investors last month, Yahoo said it had reduced the gap in revenue per search between its own engine and Google’s in the U.S. by 30 percent in the first nine months of 2007. At the end of last year, a difference of 60 percent to 70 percent still exists, the company said.
While a partnership with Google may cut Yahoo’s costs, a deal would face stiff regulatory scrutiny. Senator Herb Kohl, a Wisconsin Democrat, said today that the Senate Judiciary Committee, which he chairs, would examine any formal agreement to “ensure that it does not harm competition.” Microsoft echoed that possibility after the announcement.
“Any definitive agreement between Yahoo and Google would consolidate over 90 percent of the search advertising market in Google’s hands,” Microsoft General Counsel Brad Smith said in a statement. “This would make the market far less competitive, in sharp contrast to our own proposal.”
To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net
Source : bloomberg.com
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