Yahoo investor Carl Icahn

Microsoft-Yahoo Merger Crashes

June 12, 2008 06:08 PM
by Anne Szustek
The software giant abandoned its plans to merge with Yahoo this weekend. Meanwhile the search engine is reportedly teaming up with its chief competitor, Google.

30-Second Summary

Yahoo's stocks plummeted more than 13 percent following news of the failed merger. Microsoft shares nudged up more than 2 percent.

Silicon Alley Insider reported Thursday afternoon that Google and Yahoo have reached a small search deal.

The Wall Street Journal writes that, “In retrospect, Microsoft's unsolicited approach appears to have badly backfired. Instead of winning Yahoo's huge audience and online search capabilities Microsoft has driven its quarry into the arms of its arch enemy—Google.”

Microsoft had announced May 18 that it was proposing an “alternative transaction” to Yahoo that would not involve full acquisition of the search engine, but rather would allow the two companies to partner in their paid search advertising to catch up to the Web's industry leader. But the software company's desire to pick and choose parts of Yahoo, as Microsoft reiterated during a meeting with Yahoo this past weekend, rather than buy the whole company, backfired in the end.

The weekend meeting was when the deal truly began to fall apart, say sources.

An official statement from Yahoo argued that Microsoft's proposal “would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! stockholders.”

On May 3, the software company dropped its $44.6 billion hostile takeover bid that Yahoo rejected on the grounds that it would have undervalued the company. Microsoft said it dropped the bid, placed in February, because it would have taken too much time and was not worth the cost.

Tech industry analysts saw this move coming when Microsoft and Yahoo were jockeying last month. Seth Gilbert wrote in Seeking Alpha on May 18 that “distraction at Yahoo could spell opportunity” for Google and online advertising start-ups.

Silicon Alley Insider's Henry Blodget writes that a Google-Yahoo search partnership is “very unlikely” to stop Microsoft from acquiring the number-two search engine. “It would not be in Yahoo's interest to enter into any transaction that would prevent Microsoft or any other company from buying it.”

Headline Links: Microsoft-Yahoo merger a no-go

Background: Microsoft launches bid for Yahoo; considers hostile takeover; drops bid

Reactions: Yahoo's official statement regarding the discarded merger

Opinion & Analysis: A total takeover by Microsoft would benefit both companies


Most Recent Beyond The Headlines