Will Microsoft take no for an answer from Yahoo!?

4 Feb 2008

While Yahoo! has not yet responded either way to the public US$44.6bn bid from Microsoft, apart from saying that it is ‘undertaking a deliberate review process’, those close to Microsoft say it may execute a hostile merger using its existing position as a Yahoo! shareholder.

In an official statement Yahoo! said its board of shareholders are “going to take time to thoroughly evaluate the proposal in the context of Yahoo!’s strategic plans. This will include evaluating all of the company’s strategic alternatives, including maintaining Yahoo! as an independent company.”

The company further stated that it will take whatever option can best maximise value for its shareholders, a group which of course includes Microsoft.

Reigning internet search giant Google has expressed concerns over the proposed takeover, claiming that it would be anti-competitive.

“Microsoft’s hostile bid for Yahoo! raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It’s about preserving the underlying principles of the internet: openness and innovation,” said the company.

Google further expressed concerns over ‘Microhoo’ taking advantage of “a PC software monopoly to unfairly limit the ability of consumers to freely access competitors’ email, IM and web-based services”, adding that between them, Microsoft and Yahoo! have the “the two most heavily-trafficked portals” on the web.

However, the combined traffic of Yahoo! and Microsoft still would not be on par with Google, which is in the lead both in online marketing and search.

David Mitchell, senior vice president of IT research at UK analyst firm Ovum, explained: “Microsoft has been a third-ranking player, behind Google and Yahoo – with Google having a substantial and clear lead.

“The combined Microsoft and Yahoo business is still likely to be a much smaller player than Google, although they will have substantially improved their ability to compete.”

“However, Google still represent a formidable opponent for even the combined Microsoft-Yahoo entity to tackle. Make no mistake, Microsoft still has huge challenges.

Mitchell said that we should look to Alta Vista, a once dominant portal that had most of the search market in the mid to late Nineties but now hardly rank on a global scale. Google currently has 58pc market share in comparison to Yahoo!’s 23pc.

While Google rankle at the idea of a Microsoft-Yahoo! merger, it may well be justified given the steps Microsoft seem to be taking to ensure this union happens.

A generous bid of US$44.6bn, which is roughly 60pc higher than the current net worth, was followed by a public statement declaring that it would “pursue all necessary steps” to make the merger happen.

By Marie Boran