Yahoo weighs options as Microsoft drama continues

April 11, 2008, 05:23 PM —  IDG News Service — 

Yahoo is weighing its options to accept a buyout by Microsoft or consider tie-ups
with other companies, in particular a reported plan to join forces with AOL,
as a way to stave off the software giant's advances.

The possibilities for the ending to the story that begin on Feb. 1, when Microsoft
made its US$44.6 billion offer for Yahoo, have become dizzying, with rumors
cropping up almost daily in the past week about what the ultimate outcome might
be. The Wall Street Journal reported Friday that Yahoo's board was meeting to
discuss the company's options, which to many seem limited to one: accepting
Microsoft's current offer.

In between the rumors and speculation, Yahoo has been making some of its own
moves to avoid being subsumed by Microsoft. On Wednesday the Internet company
said it is testing Google's AdSense for Search service, acting as one of the
Web publishers that carry pay-per-click text ads from Google. The move opens
up the possibility that eventually Yahoo may outsource its paid-search business
to Google, which might provide a way out of having to make a deal with Microsoft.

Predictably, Microsoft was none too happy about the news and spared no time
pointing out all the ways that kind of union could run into regulatory problems,
because it would give Google and Yahoo 90 percent of the search-advertising
market.

By Thursday, Rupert Murdoch's media empire News Corp. was said to be hatching
a plan with Microsoft to sweeten the deal for Yahoo. News Corp. recently had
been considered a possible spoiler to Microsoft's plan, but CEO Murdoch shot
down those rumors in March. A deal to go in with Microsoft to buy Yahoo would
at least give his company a piece of the action.

On the same day, the rumor that Yahoo and AOL may join forces was dusted off
and surfaced again in the public domain. Rumors that Yahoo and AOL might merge
have been swirling since 2006, and one financial analyst on Friday even said
it might be the only way Yahoo can avoid Microsoft's buyout. Sanford C. Bernstein's
Charles Di Bona surmised in a research note that a Yahoo-AOL deal could give
investors more money than the Microsoft deal if AOL's parent company, Time Warner,
were to contribute some cash to it.

No matter what happens when the dust settles and rumors become reality -- or
not -- one thing is quite likely: combining the infrastructure for the Internet
businesses of Yahoo and Microsoft, or Yahoo and AOL, or Yahoo and Microsoft
and News Corp., is going to be a logistical headache. And even once a deal is
made, it will be years before anyone reaps a

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