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Google Tries To Make Yahoo An Offer It Can’t Refuse

godfather.pngThe Wall Street Journal, after talking to sources at Yahoo or Google, reports that Google reached out to Yahoo and made an offer to help Yahoo avoid Microsoft’s takeover bid. Google can’t offer to buy Yahoo outright; it doesn’t have that kind of money, there isn’t a good enough market to borrow the money, and Google’s got close to $5 billion tied up in the FCC auction. Plus, the antitrust regulatory storm kicked up by a vengeful Microsoft wouldn’t be worth it.

Instead, Google is offering assistance in helping Yahoo find alternatives. Google can help Yahoo line up other bidders, or barring that, Google could form a revenue agreement with Yahoo to keep the company away from Microsoft. One scenario I’m hearing discussed is the “Yahoo sells its soul” scenario, wherein Yahoo outsources a significant part of its business to Google, ruining the value of the company for Microsoft.

If Yahoo takes the poison pill, giving Google full control of its search and keyword advertising programs, Microsoft would not be able to make Yahoo succeed without kicking a portion of revenues to Google. Alternatively, Microsoft could try to break the contract, the costs of which could also be prohibitive enough to kill the deal. One wonders whether Yahoo shareholders would be able to vote to stop Yahoo from enabling a poison pill, especially since most of them want the Microsoft deal to go through.

Google also released its official statement on the situation on the Google blog, telling media “This will be our only statement for the time being.” In it, Google touts openness a quality of Google and Yahoo, and calls Microsoft’s bid hostile. Google brings up Microsoft’s past transgressions with regards to monopolies and antitrust violations.

Let’s try to keep some perspective here. Google isn’t trying to “help” Yahoo or internet users, it is trying to do what is best for the future of Google. Yahoo is a weak company right now, and the longer Google’s competition stays weak, the better for Google. Put Yahoo and Microsoft together, Google might actually have to deal with a real open market, and that’s something Google will fight to the last minute.

That said, wouldn’t it be ironic if Google saved Yahoo from ending its run as an independent company, only to see Yahoo rebound eventually? Yahoo’s executives keep saying that things will turn around in 2009, and while the market is impatient, it is possible the company could rise again on its own. Imagine Google saves Yahoo, and Yahoo comes back and actually beats, or at least becomes a match, for Google? We’d be laughing at the irony, sometime in 2011.

February 4th, 2008 Posted by Nathan Weinberg | Yahoo, Microsoft | 2 comments

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