News Corp. and Yahoo Merger Under Discussion

Following Microsoft’s $44.6 billion hostile takeover bid for Yahoo, Rupert Murdoch’s News Corp. has entered closed-door talks with the struggling search engine.

According to several sources, including the BBC and the Silicon Alley Insider, News Corp. is unlikely to pursue a full buyout of Yahoo. Instead, analysts think Murdoch’s company will merge the content of the two media giants.

“Say News Corp. convinces Yahoo that Fox Interactive Media is worth $6 billion and cobbles together another $9 billion in cash. At Yahoo's current market cap—post the Microsoft booster shot—the $15 billion would buy about a third of the company,” writes the Silicon Alley Insider.

U.K. paper The Guardian surmises that News Corp. would use Yahoo’s resources to beef up its recent acquisition MySpace. Although MySpace remains the leading social networking site in terms of users, its marketing and layout have been lagging behind rival Facebook.

The move would also benefit Yahoo, who, in the words of The Guardian, “has been perceived as falling behind in social networking—so it may relish access to MySpace.”

Yahoo’s financials have been struggling over the past few quarters. CEO Jerry Yang announced on Jan. 29 that the search engine was planning to lay off 1,000 employees.

A transcript of a press conference on SeekingAlpha.com reveals that News Corp. chair Rupert Murdoch and Yahoo have been discussing collaboration for around two weeks now—at the same time as Microsoft’s made takeover bid.

Murdoch has only gone so far as to confirm that Yahoo and News Corp. had “social meetings but that was about all. And that was with the previous chairman.”

Rupert Murdoch’s News Corp. is reportedly in talks with Yahoo that could potentially see the struggling search engine give the media conglomerate 20 percent of its shares. This move would allow Yahoo to merge its services with one of News Corp.’s recent acquisitions, MySpace, as well as fend off Microsoft’s hostile takeover bid.

On Feb. 1, Microsoft publicly disclosed its takeover bid for Yahoo, hoping that Yahoo's major stockholders would pressure its board to accept. Microsoft's long-term plan is to compete more effectively with Google in online advertising.

Following Microsoft’s $44.6 billion takeover bid in early February, “Yahoo shares jumped to $29.45 in premarket trading,” writes The Wall Street Journal. “Microsoft closed at $32.60 and dipped to $32 premarket.” The offer is subject to negotiation, but Microsoft said that the deal could be completed by the second half of the year.

An 11 percent drop in Yahoo’s share price in after-hours trading on Jan. 29 brought its total decline since last October to 45 percent. Chief Executive Jerry Yang said the company will lay off 1,000 employees. Yahoo’s shares plummeted on concerns over the company’s performance.

In reference to a possible merger between MySpace and Yahoo, Rupert Murdoch said the two parties had “social meetings but that was about all. And that was with the previous chairman.” 

The Guardian writes that a partnership between News Corp. and Yahoo could raise the valuation of MySpace, which has been lagging behind competitor Facebook in terms of brand profile. For Yahoo’s side, the search engine “has been perceived as falling behind in social networking—so it may relish access to MySpace.”

Peter Kafka, writer for the Silicon Alley Insider, guesses that a swap between Yahoo and News Corp. services is more likely than a full buy-out—perhaps for an equity stake. “Say News Corp. convinces Yahoo that Fox Interactive Media is worth $6 billion and cobbles together another $9 billion in cash. At Yahoo's current market cap—post the Microsoft booster shot—the $15 billion would buy about a third of the company,” he writes.

The Countenance Blog, a self-described “Internet organ of interest to members and supporters of the Council of Conservative Citizens,” writes that a merger between Yahoo and News Corp. could create a potential conflict of interest. “Fox Sports’ Internet presence is sponsored and powered by Microsoft. Yahoo just spurned the Borg’s hostile takeover offer.”