Microsoft/Yahoo: Will Google Play Spoiler and Bid Also?

Microsoft bids $44.6 billion for Yahoo in a deal that on the surface looks like a no-brainer. Unless Google bids too.

The logic behind a Google bid for Yahoo makes a lot of sense. In fact, Google buying Yahoo makes more sense to me than Microsoft buying Yahoo (see conference call notes and Techmeme). For starters, Google would make life difficult for Steve Ballmer & Co. And as we all know Google lives to annoy Microsoft.

Meanwhile, despite a sell-off of late Google has the stock currency and the cash to compete with Microsoft. Here’s an estimate that adds some heft to this Google as spoiler idea: Citigroup analyst Mark Mahaney said Yahoo has few options to boost shareholder value right now. Should Yahoo want to remain independent it could outsource search to Google in a move that would boost earnings by 25 percent.

The next logical question: Why wouldn’t Google just buy Yahoo? Is that speculative? You bet. Is it crazy speculation? Not at all.

As I go through the list of potential synergies with Microsoft and Yahoo the overlap is stunning in some areas. Take email–there’s Outlook, Hotmail, Zimbra and Yahoo Mail. Take ad systems–there’s Adcenter and Panama. Take ad exchanges/networks–there’s Right Media, Blue Lithium and aQuantive and probably a few more I’m forgetting. You get the idea.

Now let’s tee up Google. Google buys Yahoo and substitutes Yahoo search for Google’s. Yahoo’s algorithm is booted for Google’s. Monetization rises. Suddenly, Google has destination properties beyond YouTube. Google gets content. Google gets newspaper partnerships. Google gets more users. Google dominates display advertising with DoubleClick and Yahoo in the fold.

The overlap with Google? Not nearly as much as the Yahoo and Microsoft properties have. All Google would have to do is swap search and the deal would be accretive.

Analysts are already handicapping that Yahoo’s price tag will go up a bit–just based on Yahoo’s stakes in Yahoo Japan and Alibaba, two properties Google would love to have too. If Google bids Yahoo’s value would easily eclipse that $31 a share opening volley.

Comments

[sally:]

Wouldn't a Google-Yahoo takeover freak out the anti-trust folks in the USA and Europe?

2008 Feb 02 03:05 PM

[carlivar:]

This would have anti-trust issues certainly, but GOOG still could bid just to make Microsoft pay more. Or even if it get shot down by anti-trust, tying up YHOO in a GOOG deal would also hurt Microsoft.

2008 Feb 02 03:37 PM

[Tom B:]

"Wouldn't a Google-Yahoo takeover freak out the anti-trust folks in the USA and Europe?"

The US DoJ is run by political cronies, but the EU might be annoyed.

On the other hand, a MSFT-Yahoo deal-- a deal with a convicted monopolist company known to be totally devoid of ethics-- that should send all kinds of alarm bells ringing, worldwide.

2008 Feb 02 10:42 PM

[Loud Larry:]

What an interesting idea.... and Google has so much to gain. Let's not forget about how similar the cultures are. And Google based so much of its early development of having Y! As an Uncle.

Regardless... it could be an excellent way to make/see Microsoft pony up additional $$ for Y! shareholders. Now that would be, truly "Evil"... muahahahahahaha

The most annoying part of this deal is that MS thinks it can just buy its way into a market, have instant and sustainable success. They've already failed with their own on-line attempt... So now they want to spend tons of they're shareholders money and ruin another company? It's frightening to see they don't get why Y! pressed to stay independent in the first place. And folks just don't want to work for this company - no matter how much money they throw around or how many products / services they dominate.

Hmmm - perhaps if Google isn't interested, well maybe GE, News Corp, Disney, Goldman Sachs, or some other PE firm will be. We know Warren Buffett doesn't dabble in tech… but maybe he should start. Come on Sue, why not give ole Warren a call?

It's somewhat revolting and irritating to think such great assets would fall into the hands of arrogant folks in MS-World.

2008 Feb 03 12:30 AM

[Tom B:]

Actually, for Yahoo to go it alone all they have to do is 1) survive the recession or 2) see Alibaba (44% stake) skyrocket (as some believe it will. Personally, I'm skeptical on that stock).

2008 Feb 03 09:10 AM

[Bill West:]

My compliments to Mr. Dignan for putting a different angle on this possible acquisition of Yahoo by Microsoft or Google.
Now for my take on the Google quarterly report and Microhoo commentary this weekend:

First, the Microsoft/Yahoo/Google idea-

Interesting idea on Google getting into the Yahoo fray. Less overlap and quick monetization once the search engines are changed. Yes there are EU and US monopoly concerns but I think the "do no evil" philosophy could be granting enough assurances to the US and EU to appease regulators. Remember the EU and the US Department of Justice hates Microsoft. Imagine the uproar if Google got the EU and US approval and Microsoft was denied. The Doubleclick approval is pending by the EU as well.
One way or the other a Yahoo acquisition by Microsoft or anyone else will take at least a year. It would be so contrarian and a Ballmer nightmare if Google was to scoop this deal from Microsoft. Perhaps someone from the Google office will make this their personal project. Just a thought…..remember while the lawyers, regulators, shareholders, and others debate the Microsoft/Yahoo marriage; Google will keep innovating and moving forward while Microsoft and Yahoo commit resources to work on integration issues.

Second, the earnings report-

The financial numbers are out there for all to see and the analysis and spin on the numbers is interesting. However, fundamentally the Googleologists continue to open the internet Web 2.0 and Android in the new Cellular 2.0. Google has a track record with open source protocols and these will only get larger as the “build out” of the Web and Cellular 2.0 continues. More revenue sharing is possible for all participants. This whole arena is a work in progress requiring fine tuning and tweaking constantly. You just have to see past the edge of your desk into the new internet without borders and cellular without limits. Many of the old business mantras are simply obsolete in this arena.

This weekend many of the bloggers and “talking heads” blather openly predicting the demise of Google and internet monetization in a slower economy. NOTHING COULD BE FARTHER FROM THE TRUTH. A slowing economy demands internet usage for cost reduction comparisons and economy of motion utilizations. Are you driving around town with gas at $3 per gallon looking for the best deal on your next purchase or are you researching online and getting information on the location and price of the item that suits your budget???? The Web 2.0 and Cellular 2.0 are in still in their infantile stages. There will be some missteps and flawed executions. What separates the truly great companies from the mundane is the ability to rapidly correct flawed ideas and implement a solution or a new direction rapidly by doing what is right and necessary without hesitation.

One way or the other a Yahoo acquisition by Microsoft or anyone else will take at least a year. It would be so contrarian and a Ballmer nightmare if Google was to scoop this deal from Microsoft. Perhaps someone from the Google office will make this their personal project. Just a thought…..the recent decline in the stock price is an opportunity to invest in the next “Microsoft” for the 21st century: GOOGLE !!!

Disclosures- long Google

2008 Feb 03 10:40 AM

[TA:]

No way Warren would buy tech anymore than I would. The few companies that do make money are overpriced, and most moats are too easy to cross. Do all of you really think AAPL and GOOG will rule technology for very long? Tech is littered with new upstarts taking out old ones. It's ok for a quick trade but that's it.

2008 Feb 03 07:42 PM