Yahoo Keeping Options Open as Microsoft Threaten Takeover

The drama surrounding Microsoft’s Yahoo takeover bid continues to unfold, as rumors and news fly thick and fast across the markets. After all, a Microsoft-Yahoo merger would result in the birth of a significantly large business entity. Add to the equation News Corp – for there has been talk of News Corp joining hands with Microsoft – and then you have a mammoth entity to consider.

The board of directors at Yahoo had a meeting on Friday to discuss about Microsoft’s offer and also look at any possible alternatives available. The board decided to meet after Microsoft threatened a hostile takeover if the company refused to get into merger discussions with it.

According to people in the know about the meeting, the board granted Yahoo management the authority to continue explore the different avenues, and have further meetings with Microsoft and also News Corp. The company is looking at the different scenarios and options available, apart from merging with Microsoft.

One option is to explore further the possibility of merging with Time Warner’s AOL. The two companies have had talks in this direction. Another option is to outsource the search advertising business directly to Google. By doing so, Yahoo could hope to increase its revenue and avoid merging with Microsoft, or any other company, for that matter.

A Yahoo-AOL deal would mean Time Warner merging AOL with Yahoo a move that would increase Yahoo’s cash reserves and allow AOL a 20 percent stake in Yahoo. It would also mean an AOL valuation of $10 billion. Such a deal would leave out the dial-up business of AOL, which is currently in free fall.

Outsourcing the search advertising business to Google seems to be something Yahoo is looking at seriously as it announced Wednesday it would be conducting a limited test to see if the company’s revenues increase by outsourcing to Google. Yahoo has earlier admitted that Google’s earnings per search are at least 60-70 percent more than its own.

Steve Ballmer, the Microsoft CEO, had spoken last Saturday of the possibility of throwing out the Yahoo board members by proxy should the company not negotiate a deal with Microsoft by April 26.

Yahoo had issued a statement Monday to the effect that while it had not said ‘no’ to a deal with Microsoft, it still maintained that the Microsoft offer did not reflect the true value of Yahoo. The initial offering of $31 per Yahoo share worked out to a total of $41 billion, which had come down further to $28.95 per share or $41.6 billion, after Microsoft shares nosedived.

Analysts and industry watchers and pundits on Wall Street as well as in Silicon Valley say that Microsoft will finally acquire Yahoo. As venture capitalist and former CEO of Lycos, the Internet portal put it, “If you want the final chapter, Microsoft buys Yahoo.”