News

Google Rumored To Be Planning Yahoo Purchase

• By Kurt Mackie
• 10/24/2011

Google reportedly is seeking to purchase Yahoo via private equity-firm funding.

The idea that Google wants to acquire Yahoo comes from The Wall Street Journal, which cited unnamed sources for the claim in a story published today. Late last week the WSJ also cited unnamed sources claiming that Microsoft wants to buy Yahoo too. The Alibaba Yahoo Chinese subsidiary also supposedly is considering a purchase. The unsourced stories could all just reflect company positioning rather than real intentions.

Yahoo's third-quarter earnings, which ended on Sept. 30, 2011, showed a 5% decline in overall revenue year over year for the company. Yahoo appears to be shopping around for a buyer after it dropped CEO Carol Bartz in September.

Yahoo once traded at around $25 a share in late 2007 to early 2008, but the stock now hovers at around $15 per share, according to a Yahoo Finance graph. The stock gradually declined after Microsoft pulled its unsolicited offer to buy Yahoo in May 2008. Microsoft originally bid $44.6 billion for the company.

Today's WSJ story clarifies that Microsoft is only seeking to finance a buy of Yahoo's preferred stock and "isn't seeking full ownership of Yahoo." Google, on the other hand, purportedly seeks to sell ads on Yahoo's sites, as well as get closer to deals with ABC News, which provides content on Yahoo's sites, according to the WSJ's unnamed sources.

A proposed deal between Google and Yahoo on search and advertising was killed off by Google in November of 2008. David Drummond, Google's senior vice president for corporate development and chief legal officer, said at the time that government regulators and some advertisers had questions about the deal, and that Google was withdrawing to save its partner relationships and avoid an extensive legal battle. Microsoft had also voiced its objections at the time.

It's not clear why those past regulatory and competitive concerns would have changed today, making Google's bid for Yahoo possible. One idea, proposed in the WSJ article, is that Google may only be trying to bid up the price of Yahoo for Microsoft and other competitors, which is a "standard competitive practice," according to the article.

Such a practice to increase the costs for competitors may have been at play when Google put out "stalking horse" bidding numbers for Nortel's patents when they were up for sale. Google's bids at the time seemed based more on numerical constants, such as the digits for pi, rather than being strategic. The Nortel patents were eventually purchased by a coalition led by Apple, Microsoft and others. Google ended up putting out a bid to buy Motorola Mobility instead. That bid is currently on hold as government regulators seek a "second request" from Google on the deal.

In September, Google held the No. 1 position in U.S. search market share at 65.3 percent. Its distant contenders included Yahoo at 15.5 percent and Microsoft at 14.7 percent, according to stats from comScore. Microsoft was able to nearly double its U.S. market search share via a deal with Yahoo, which was approved by regulatory authorities in February 2010. However, Microsoft continues to bleed money chasing Google, as its recent financials showed.

While Google leads in text ads, it still trails Yahoo in generating revenue from display advertising in the U.S. market, according to the WSJ. And that may be an additional motivation in the acquisition bid, which no doubt will face tough regulatory scrutiny should the deal emerge.