Microsoft hot for Yahoo: Is it for real this time?

Summary:Will Microsoft pull the trigger on a long-rumored acquisition of Yahoo?The New York Post thinks so.

Will Microsoft pull the trigger on a long-rumored acquisition of Yahoo?

The New York Post thinks so. The Post is reporting that Microsoft is asking Yahoo to formally enter merger negotiations. Talks have been going on informally for years.

After being spurned by DoubleClick, Microsoft needs to beef up its online advertising and Yahoo would take care of two weaknesses: ads and search market share. If it made sense for Microsoft to buy DoubleClick, it really makes sense to buy Yahoo. The rub: A massive acquisition is out of character for Microsoft.

According to the Post:

While Microsoft and Yahoo have held informal deal talks over the years, sources say the latest approach signals an urgency on Microsoft's part that has up until now been lacking.

The new approach follows an offer Microsoft made to acquire Yahoo! a few months ago, sources said. But Yahoo! spurned the advances of the Redmond, Wash.-based software giant. Wall Street sources put a roughly $50 billion price tag on Yahoo. Goldman Sachs is apparently working with Microsoft, a fact that's no surprise since Goldie has been the investment banker of choice for Redmond since its IPO.

Now let's connect the dots on how this story developed. As Mary Jo Foley reported yesterday Microsoft is trying to transform into an advertising company. Meanwhile, Foley also noted that Yahoo Terry Semel is speaking at a Microsoft-run advertiser confab. Those dots are pretty easy to connect--both dots are the size of the moon. With those two items, all you have to do is regurgitate some old rumors, find a banker to speculate, toss in some background and poof you have a story.

Indeed, the arguments for a deal are pretty good. Yahoo's Panama ad system is the real deal and if company officials are to be believed--it's only going to get better. That fact indicates that Yahoo's price tag will only increase. Why not pay $50 billion today so you don't have to pay $70 billion later?

Meanwhile, Microsoft needs a way to close the search market share gap. Organic growth isn't going to cut it. By adding Yahoo and leaving it run mostly independent Microsoft has a shot of matching Google's share in the future. Today, it has no chance at all.

No one at Yahoo and Microsoft are commenting. Something tells me a lot of other folks will have something to say though. But let's not get carried away here--we've heard these things before.

Topics: Microsoft, Social Enterprise

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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