Microsoft can’t take no for an answer. Quoting a “high-ranking Microsoft executive”, Reuters is reporting that the company is considering resurrecting its efforts to buy Yahoo.
In 2008, Yahoo rejected a buyout offer from Microsoft for $33-a-share, $47.5bn offer, saying that it undervalued the company. Until takeover rumours started recently, Yahoo’s stock has fallen as low as $11 a share, an indication of how far its fortunes had fallen.
Microsoft isn’t the only company considering a bid. Private equity firms including Silver Lake Partners, Providence Equity Partners and Hellman & Friedmanare all considering making offers. Russian tech investors DST Global are also in the frame, and Jack Ma of Chinese e-commerce giant Alibaba has been telling everyone and anyone that he’s interested in buying Yahoo, which owns
40% of his company. In June, Ma said that he would buy Yahoo if only someone would lend him the money, and he reiterated his desire to buy the company last week.
It has been reported that Silver Lake, DST and Alibaba might be considering a joint bid for Yahoo. The trio are no strangers. Silver Lake, DST and private equity firm Yunfeng Capital invested $1.6bn in Alibaba last month, valuing the e-commerce firm at $32bn. On the takeover rumours, Yahoo shares spiked 10%, giving it a market cap of $20bn.
Yahoo is still a big takeover target, and the private equity firms might not be able to buy all of it, especially considering the current chaos in the financial markets. Reuters said that one scenario sees a private equity firm buying Yahoo’s US operations while leaving Alibaba to take over its Asian divisions.
Challenges for Microsoft
A Microsoft bid is far from certain, and it is still the subject of heated internal debate, according to Reuters. It quoted the high-ranking Microsoft source as saying:
“One camp inside Microsoft is hot for the deal, believing that it would obliterate AOL Inc as a competitor and create a strong Web portal that can offer better products to audiences, advertisers and end users, the executive said.”
Why Microsoft would be worried about AOL at all is a mystery. AOL is subsisting on the remnants of its dial-up internet business while CEO Tim Armstrong tries to chart a turnaround effort based on content. Microsoft has plenty of reasons to worry about its Online Services Divisino. The division, which competes with AOL, bleeds cash. It hasn’t turned a profit since 2005, reporting 22 consecutive quarters of losses, and not small losses either. The division lost $728m in the quarter ending in July, for an annual loss of a staggering $2.5bn.
Combining Microsoft’s online division with Yahoo brings to mind the saying that tying together two rocks together doesn’t make them float. Yahoo is already expected to lose its lead in online display advertising in the US this year, losing it to fast-rising Facebook, according to eMarketer.com. In 2009, Yahoo took in 15.8% of all display advertising, while Facebook was less than half of that at 7%. In 2012, eMarketer.com estimates that Facebook will take in a staggering 19.4%, while Yahoo will have fallen to 12.5%.
Last month, Microsoft, Yahoo and AOL announced that they were forming an ad alliance, selling inventory on each other’s sites in an effort to defend their businesses from Google. It will be interesting to see how the alliance holds up with a high-ranking executive at Microsoft being quoted as wanting to obliterate AOL.
A Microsoft bid for Yahoo might also raise anti-trust concerns, as it did in 2008 and again in 2009 when the two companies signed a search deal.
Yahoo finds itself with many suitors, but apart from Ma, we’ve heard little strategy about what they want to do with Yahoo. Whoever buys the company has a the unenviable task of turning around that internet pioneer. Yahoo needs to discover what it is in the age of search and social to remain relevant and rebuild its once great brand.