Google's bid to derail Yahoo deal a long shot
NEW YORK, NY (February 5th 2008) – In a bid to preserve its dominance on the Web, Google Inc. is seeking to derail Microsoft Corp.’s plan to gobble up Yahoo Inc.
Since learning of Microsoft’s $44.6–billion US unsolicited bid on Friday, Google has gone on the offensive, saying the merger would threaten Web innovation and competition.
At the same time, behind the scenes, the Internet giant is said to reaching out to rivals who may be interested in putting together a competing bid for Yahoo.
But Wall Street analysts and legal experts say the effort is a long shot. The proposed deal shouldn’t pose major hurdles with antitrust regulators, while finding a bidder to top Microsoft’s 62 per cent premium appears next to impossible.
"In a way it’s analogous to Rupert Murdoch’s offer to acquire Dow Jones," said Ken Marlin, managing partner at Marlin & Associates, a technology investment banking boutique.
"It’s a very strong offer. It isn’t likely there’s anybody out there to top it. Just like with the Bancroft family (Dow Jones’ controlling shareholder before the takeover by Murdoch’s News Corp.) there are no white knights."
Google would be highly unlikely to try to acquire Yahoo itself because such a deal would combine two giants in search and online advertising, raising antitrust red flags.
AT&T Corp., News Corp. and Time Warner are considered possible bidders. But those suitors probably wouldn’t be willing to pony up more than the bid from Microsoft, which has identified cost cuts from overlapping operations that could save the company as much as $1 billion.
"For everybody else, there doesn’t seem to be the same cost synergies," Marlin said. "Time Warner is a possible exception, but that company already is the poster child for a bad tech deal with AOL."
Another possibility would be for Google and Yahoo to resurrect a proposed business alliance in which Yahoo would outsource its search capabilities to Google.
But even with the ad revenue boost Yahoo could get from such a pact, the struggling company would still have a hard time convincing investors that the plan could boost its shares to Microsoft’s lofty $31 US offer.
Meanwhile, industry observers said Google’s cries of lost competition may help delay the deal a bit, but ultimately they expect it to get approved by antitrust regulators.
Rather than less choice for consumers the deal could result in more options because it could create a stronger rival to Google, which is the dominant player by far in Internet search advertising.
Microsoft chief executive Steve Ballmer told analysts at a briefing Monday that the deal would be good for consumers by creating a strong No. 2 to Google.
"Google’s clearly got a dominant position. They’ve got about 75 per cent of paid search worldwide," Ballmer said. "We think this enhances competition. Anything else would be less good from that perspective."
His comments followed a blog posting over the weekend by Google’s chief legal officer, David Drummond, which pointed to concerns about Microsoft’s software monopoly and its history of clashing with regulators over antitrust issues.
"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?" Drummond wrote in the blog post on Google’s corporate website.