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Internet big boys engage in war over Yahoo!
AOL, Google and News Corp all vie for a piece of the action

By Reuters

Published: Thursday 10 April 2008

Yahoo!, which was widely believed to be running out of alternatives to accepting Microsoft's takeover offer, has become a target of two warring camps of technology giants and their media allies, sources have said.

News Corp is considering joining Microsoft in a bid for Yahoo! which would bring in News Corp's MySpace social networking site and create a more formidable rival to internet juggernaut Google, newspaper reports said.

But Yahoo!, which announced earlier on Wednesday that it plans to test Google search ads alongside Yahoo! web-search services, is closing in on a deal with Time Warner to merge with its AOL unit, several sources said.

The game of musical chairs among the internet titans follows two years of on-again, off-again talks to strike industry-reshaping mergers among different configurations of the same players.

Google, unaccustomed to being placed on the back foot by its rivals, is considered a secondary player unlikely to enter the merger bidding, as its growing dominance in web search and search-based advertising could be blocked by competition regulators.

Sanford C Bernstein analyst, Jeffrey Lindsay, said: "The whole situation seems to be very unstable," adding that Microsoft's bid for Yahoo! precipitated a cascade of offers.

"There are so many pent-up moves for consolidation but it's hard to say which moves will be successful," Lindsay said.

Reports were hazy on exactly how a Microsoft deal with News Corp might be structured, making Wall Street analysts reluctant to speculate on which combination might prove the superior offer.

But several agreed Yahoo! has regained some of the negotiating momentum it appeared to have lost with Microsoft.

Yahoo!'s talks with Time Warner are getting near to a deal that would fold AOL's business, excluding its legacy dial-up internet-access operations, into a combined Yahoo! company, a person familiar with the talks said. Such a deal would value AOL at $10bn, the person said.

Yahoo! would receive cash from Time Warner in exchange for 20 per cent of a combined Yahoo!-AOL, the source said. Other sources confirmed the outlines of the talks but provided no further details.

The Wall Street Journal cited sources as saying Yahoo! would use the Time Warner cash and other funds to buy back several billion dollars worth of Yahoo! stock at a price somewhere in the middle of the range between $30 and $40 per share.

The New York Times reported Microsoft had begun talks to bring News Corp in on its effort to acquire Yahoo!.

This combination would bring together three of the biggest website publishers on the internet: Yahoo!, Microsoft's MSN and News Corp's MySpace, creating a formidable counterweight to web leader Google - but also drawing antitrust scrutiny.

Yahoo! said it was beginning a two-week test on whether it can use Google to sell ads alongside Yahoo web-search services. The initial test is small, covering only three percent of web searches performed on Yahoo, the companies said.

Microsoft general counsel Brad Smith said Yahoo! and Google would consolidate more than 90 per cent of the search ad market in Google's hands. Herb Kohl, the Democratic head of the US Senate antitrust subcommittee, said he was watching Yahoo!'s deal closely to ensure it does not harm competition.

Microsoft, News Corp, Time Warner, Google and Yahoo! all declined to comment on the talks.