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Yahoo! considers Google friendship offer
And the war of words begins…

By Reuters

Published: Monday 04 February 2008

Yahoo! would consider a business alliance with Google as one way to rebuff a $44.6bn takeover proposal by Microsoft, a source familiar with Yahoo!'s strategy said at the weekend.

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Yahoo! management is considering revisiting talks it held with Google several months ago on an alliance as an alternative to Microsoft's bid, that source said. At $31 a share, Yahoo! believes the bid undervalues the company, two sources said.

A second source close to Yahoo! said it received a procession of preliminary contacts by media, technology, telephone and financial companies. But the source said they were unaware whether any alternative bid was in the offing.

In a memo to Yahoo! employees on Friday Yahoo! leaders wrote: "We want to emphasise that absolutely no decisions have been made - and, despite what some people have tried to suggest, there's certainly no integration process underway."

Few natural bidders exist beside Google that could engage in a bidding war, and Google would be unlikely to win approval from antitrust regulators, some Wall Street analysts said on Friday.

The Wall Street Journal reported on its website on Sunday that Google's chief executive Eric Schmidt called Yahoo!'s chief executive Jerry Yang to offer his company's help in any effort to thwart Microsoft's bid.

Yahoo!'s efforts to find an alternative bidder could simply be a measure to pressure Microsoft to boost its bid, which valued Yahoo! at $44.6bn when first announced on Friday.

Sanford C Bernstein analyst Jeffrey Lindsay wrote in a research note "the Microsoft bid of $31 is very astute" because it puts pressure on Yahoo! management to take actions that could unlock the underlying value of Yahoo! assets, which he estimates are worth upward of $39-$45 a share.

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