Google to Buy 19.9% of Yahoo To Block MSFT? Why Not, They've Done It Before.

Rumor-monger TechCrunch cranks out another hot one -- Google is thinking of buying just under 20% of Yahoo just to block the Microsoft-Yahoo deal. Rumor-squelcher Swisher howls in protest but offers no scoop to debunk it. So it's time for us to weigh in.

We wish we found this "20% plan" absurd, but based on Google's silly reaction to the Microsoft bid to date, we think Google might actually be considering it. And although Kara is right that merely pretending to want to buy Yahoo stock at a premium would incite shareholder lawsuits and outrage, we don't see any reason why Google couldn't actually buy 20% of Yahoo. (Eric writes check for $11 billion, Google still has $3 billion left.)

What's more, Google has used this play before, albeit on a far smaller scale. Remember when Microsoft and Yahoo were trying to negotiate a deal with AOL? Google flew in at the 11th hour and forked over the $1 billion-at-a-$20-billion valuation Time Warner wanted just to send Microsoft packing.

But here's why we hope Google isn't actually considering doing this:

• Google has plenty to worry about other than the Microsoft bid. Based on the recent Comscore data, Google has enough on its plate before it spends 80% of its cash mountain to block an acquisition.
• A Microsoft-Yahoo combination would be good for advertisers and publishers--and, in some ways, bad for Google. Thus, Google's frantic efforts to stop the deal could trigger even more regulatory scrutiny. Google says it is worried about Microsoft-Yahoo because of Microsoft's past monopolistic behavior. This is a crock, but a Microsoft-Yahoo combination would, in fact, reduce Google's ability to call all the shots in web advertising--because it would give advertisers a more credible alternative. This won't kill Google--in fact, it will likely make it more disciplined and better--but it will likely lead to margin compression as Google responds by offering more service and/or lower prices. Google can't be happy about that. But regulators won't be happy about any Google-move perceived as an attempt to prevent it.

Comments

[Tom B:]

If I were Eric Schmidt, I'd sit back and let those YHOO shareholders with an IQ greater than 80 reject the MSFT offer, all by themselves.

2008 Feb 28 01:16 PM

[User 138049:]

28-19/9 = 47 percent. In this market I will take that.

2008 Feb 28 02:34 PM

[John Capozzi:]

AGAIN HERE YOU GO NO BACK UP PROOF FOR YOUR STORY. CARELESS REPORTER WRITING.
HERE IS A BETTER SPECULATED MOVE: ALLIBBA AND SOFTBANK TEAM UP BACKED BY FUNDS IF NEEDED BY THE CHINESE GOVERNMENT AND BUYS THE REMAINDER OF YAHOO AND COMBINE INTO ONE. NO ANTI TRUST PROBLEMS AND A BETTER MATCH UP THEN MICROSOFT AND KEEPING THE YAHOO NAME WITH EMPLOYEES AND DOWN THE ROAD TAKE OVER OF NIPPON TELEPHONE AND WIRELESS AND THERE YOU HAVE IF NOT THE BIGGEST MEDIA, SEARCH AND WIRELESS COMPETITOR IN ALL OF ASIA WHERE THE MONEY WILL BE IN SEARCH. ADD AND WIRELESS AND MEDIA NOW AND IN THE FUTURE. AT BETWEEN 45 AND 50 DOLLARS A SHARE IT WILL BE AS IF THEY ARE INVESTING I THEMSELVES. YOU MEDIA KINGS DONT EVEN TRY HARD ENOUGH TO FIND THE TRUE VALUE OF YAHOO'S ASSETS I ASIA. WHAT EVER HAPPENED TO THE TRUE AND HONEST REPORTING OF YEARS AGO. THE OLD TIMES COULD REALLY GIVE YOU ALL A GOOD TEACHING IN REPORTING. THAT IS WHY THE SMALL AND MEDIUM INVESTORS DONT TRUST YOU NO MORE. YAHOO 40 OR BETTER IN LESS THEN 10 WORKING DAYS AND THAT IS MY BET.

2008 Feb 28 03:38 PM

[Anonymous Y...:]

The other thing that would do is trigger a condition for the retention plan, making it *very* expensive for Yahoo! to lay off any more employees.

If Google wants to pick up Yahoo! talent on the cheap, this would be the *last* thing they'd want to do.

2008 Feb 28 04:12 PM

[Woz2000:]

Henry Bloget, humm, are you the guy that said BUY while chatting it up with the good old boyz about that piece of #@^%% stock?

2008 Feb 28 05:45 PM