Google May Buy Yahoo! to Edge Out Microsoft

Google is trying to buy rival Yahoo and has talked to at least two private equity firms about financing the deal, reports the Wall Street Journal.

Google is mulling purchasing Yahoo and has contacted at least two venture capital firms to help buy the company’s core business, according to a report. Photo: Satyendra Kumar/Flickr

Google and prospective partners have held early-stage discussions but haven’t put together a formal proposal and Google may end up not pursuing a bid, this person said. It is unclear which private-equity firms Google has talked to.

The shadow manoeuvring to bid for Yahoo!, which fired Carol Bartz, its chief executive of just 18 months, in September is beginning to heat up as Microsoft and a number of private equity companies begin formulating their propositions for the struggling media company. Any deal tying two of the biggest Internet companies would be sure to attract antitrust scrutiny.

Google is already under regulatory scrutiny from governments around the world. Greg Sterling, an analyst at Opus Research in San Francisco, told Bloomberg: “If competition dissipates or diminishes, then the hand of regulators is strengthened. If competition is diminished or marginalised, then all the arguments about Google being a monopoly ring more true.”

Federal antitrust lawyers in 2008 thwarted a Web-search advertising partnership between the companies. A year later Yahoo signed a 10-year search partnership with Microsoft Corp.

Google is interested in selling some advertising across Yahoo!’s websites, the Journal said, citing people familiar with the matter. Microsoft Corp is now considering financing part of a bid for Yahoo! by a private equity firm, people familiar with the matter have said.

Microsoft isn’t seeking full ownership of Yahoo!, but rather acting in effect as a financier partly in exchange for being able to retain some influence over Yahoo!’s future, the people said. Under the joint bid currently being discussed, Microsoft wouldn’t own common shares, they said.

Microsoft’s contribution would likely be several billion dollars, the people said.

A number of potential buyers have expressed interest in a deal with Yahoo!. Private equity firms Silver Lake Partners, Providence Equity Partners, Bain Capital, Hellman & Friedman, Blackstone Group, and KKR are among those likely to get a look at the limited financial data Yahoo’s advisers are circulating.

Google, with $42.6 billion in cash, could afford to buy Yahoo, which has a market value presently of just over $20 billion, but it unlikely to make a direct bid for it.

There would be regulatory problems with the approach because if it were to take over Yahoo!’s search business then it would have a stranglehold on that sector in the US beyond its already dominant 65% share: Yahoo! has about 15.5% of the sector in the US, with Microsoft’s Bing (which powers Yahoo!’s search) at 14.7%.

Yahoo! also has relationships with many so-called premium content publishers such as ABC News, which provides video and other content for Yahoo! sites and for which Yahoo! currently sells ads. Google is interested in having deeper business relationships with such publishers, one of these people said.

Google’s interest in participating in the Yahoo sale discussions could also be partly an attempt to bid up prices to make matters more difficult for competitors such as Microsoft, said a person familiar with the matter. Such a tactic is standard competitive practice.

Google wants to help sell the ad space across Yahoo! sites as Yahoo! has struggled to get good prices for it, people familiar with the matter said. Yahoo!’s display-ad business—which includes graphical, interactive and video ads—is a $2 billion annual business.

For now, Yahoo! is trying to put together a partnership with Microsoft, AOL Inc. and other publishers of online content to pool ad space together into one marketplace to challenge DoubleClick, people familiar with the matter have said. It is unclear whether the partnership will come to fruition, or how long it would take to complete. [via The Wall Street Journal, MSN and Guardian]

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