All Out Media War? Yahoo! and AOL vs. Microsoft and News Corp.

April 9 – Despite many impressions that Microsoft’s offer to buy Yahoo! for $31 a share was dying down and potentially would go away, all sides of the transaction are shifting strategies. On April 5, Microsoft gave the Yahoo! board until April 26th to make a deal or face a hostile takeover, which would include offers directly to shareholders with the potential for a lower bid. The Yahoo! board continues to formally reject Microsoft’s offer. With Yahoo! stock generally stagnant over the last 52 weeks (about $6 in either direction of the current close of $27.77 on 4/9/08), shareholders are much more likely to let money talk than are rich, ego-driven board members that want Yahoo! to remain independent.

New developments are in the air: The New York Times reports that Microsoft is in talks with News Corporation, the media acquisition leviathan, to make a joint bid for Yahoo! (Yahoo! Finance acknowledges this possibility here). Additionally, Yahoo! and AOL are said to be close to a deal themselves: Time Warner will agree to fold AOL into Yahoo!, while Time Warner would invest cash into 20 percent of the combined entity (giving AOL a $10 billion value). Should these be true, it could pin two very highly-bankrolled operations against each other with no room for error. So, what is all the fighting about?

It is likely that Yahoo! is fighting for its independent life, or at least wants to choose its own destiny, to prove it still has what a website needs to remain in the environment of Internet companies that matter. In the last several weeks, Yahoo! has had several major announcements in the last few weeks in an attempt to prove just that. Yahoo! launched “Buzz,” a news and Internet traffic aggregating website similar to Digg, Del.icio.us, Newsvine, and Stumbleupon. Yahoo!’s Flickr recently launched a video service, hoping to be the first realistic competition for Google’s Youtube. Yahoo! announced the acquisition of IndexTools’ Analytics Business in an effort to expand online marketing efforts. It also recently disclosed plans to use Google’s ad search engine, a revolutionary team-up between rival search engine companies. Essentially, the two companies agreed that Yahoo! could test Google’s search-based advertising in an effort to fend off Microsoft (think: enemy of my enemy is my friend).

Absent these recent efforts, Yahoo! would have little reason to give shareholder that it is in their best interest to wait this process out and have faith in the Yahoo! board. Though the leadership of the company cruised in neutral while companies such as Google flew by, they have woken up and realize they have work to do in re-establishing Yahoo!’s name. These three developments may just be enough to show shareholders that the company is working overtime and handing over the reigns to another company would thwart any efforts in keeping Yahoo! competitive.

If this is the board’s strategy, they too should make sure they are moving full speed ahead. If these recent developments at Yahoo! do not prove to shareholders that selling is a bad idea, the victor of this acquisition war will enjoy quite the spoils.

Spread the Word: :: :: :: :: ::