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Merger talks between Microsoft and Yahoo! - started last year but then put off - are believed to have commenced again with the aim of creating a powerful competitor to the soaring Google.
Reports in the US yesterday said talks between the two companies were at an early stage, but that senior executives within both were convinced such a merger would pair their respective strengths. The decision by Microsoft Corp and Yahoo! Inc to return to the negotiating table also highlights the growing power of Google Inc. Yahoo! shares surged more than 18 per cent following news of the talks.
The New York Post reported that
Quote:
Microsoft had asked Yahoo! to enter formal negotiations for an acquisition that could be worth $50bn (£25.1bn). Meanwhile The Wall Street Journal online added that, according to sources familiar with the situation, the two companies were looking at a merger or some other match-up.
The WSJ said
Quote:
Microsoft has technical expertise that might benefit Yahoo!, one of the world's most popular websites and capable of attracting millions of consumers a day. Last year, Yahoo! suffered because of its failure to convert to a new online advertisement system that was designed to close the gap with Google. So far, that system, which was codenamed Project Panama, has not boosted the company's revenues. In addition, Yahoo! is facing increased competition to sell advertisers the graphical display ads that have been a large source of its income.
Meanwhile, a merger could help Microsoft confront the key challenge of attracting advertisers to its online businesses. While the company has been working for the past few years to develop the technical ability to broker online advertisements, it has failed to attract sufficient business.
The two companies declined to comment on the reports yesterday. A spokesman for Yahoo! said: "We don't discuss market rumour or speculation." Analysts said that such a merger could yet be blocked by senior executives at Yahoo!. Co-founder Jerry Yang has a reputation of disliking Microsoft, even to the extent of avoiding using its products. Senior staff might also consider leaving if a takeover triggered a divestment of their stock options with the company.
The WSJ said
Quote:
inside Microsoft there may have been a change in factors that led to the derailment of talks with Yahoo! last year. It said at that time managers within the software giant's online group had been urging the company to rely on its own online search and advertisement systems and not to buy Yahoo!. Since then a number of executives who were involved in establishing those systems have left the company, it said. Now there is pressure for the company to boost its online presence.
Another factor that may be pressing on both companies is their mutual failure last month to acquire the online advertisement specialist DoubleClick when it was bought by Google for $3.1bn. Microsoft reportedly sought the latest talks and is working with Goldman Sachs Group Inc about a possible merger or takeover. Goldman Sachs - which has reportedly been pushing Microsoft to make such an acquisition for months - also declined to comment.
The Independent wrote:
"Microsoft won't be able to catch up with Google on its own," Wim Zwanenburg, who helps oversee €27bn (£18bn) at Bank Degroof Group, including Microsoft shares, told Bloomberg News. If you want to play a role, you'll have to gain market share and conquer a position."
Peter Misek, an analyst with Canaccord Capital Inc in Toronto, said it could take Microsoft a decade and cost it billions of dollars if it sought to catch up with Google purely through internal development.
"Their only other real choice to catapult into a really competitive position is either to buy five to 10 smaller companies or buy something like Yahoo!," he added. "Once Google bought DoubleClick, the ability for Microsoft to build - via smaller pieces - a viable competitor to Google disappeared."
What do you think? What could a Microsoft and Yahoo merge mean, and what if Google, which with their shares, they could, (according to the FT Today), outbid Microsoft? Hotmail would be consumed in to Yahoo Mail - MSN and Yahoo Messenger... but what about cultural clashes? Directors that are traditionally Anti Microsoft and indeed users... Would the Yahoo Brand be best kept? What about FlickR, Upcoming.org and Delicious? Debate!
BBC Have reported on the Microsoft and Yahoo Talks:
BBC.co.uk wrote:
One analyst said a takeover of Yahoo was unlikely given the huge sums required but some form of co-operation in areas such as advertising was more conceivable.
"I don't think it is going to happen," said Matt Rosoff, from IT research firm Directions of Microsoft, of a possible takeover.
The two firms' cultures were incompatible, Mr Rosoff added.
"I do not understand what Yahoo would get out of the deal, including that there are people there who don't want to work for Microsoft."
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