Yahoo's conundrum: White knights are hard to find

Yahoo's conundrum: White knights are hard to find

Summary: Yahoo is reportedly holding out hopes that there's an alternative to Microsoft's $44.6 billion unsolicited takeover, but it's becoming clear that white knights are missing in action.

SHARE:

Yahoo is reportedly holding out hopes that there's an alternative to Microsoft's $44.6 billion unsolicited takeover, but it's becoming clear that white knights are missing in action.

According to the Wall Street Journal, Yahoo is studying alternatives to Microsoft's bid hoping that it can avoid a Microsoft takeover. The problem: Hope isn't a strategy. And as the days go by Yahoo will face increasing pressure to join Microsoft.

There are a few dynamics that hamper Yahoo's search for a white knight bid. Among them:

  • Microsoft floated a strong offer at $31 a share. News Corp. said it wasn't interested and it's unclear whether any company other than Google could step up and match Microsoft's price. In many respects, Microsoft's bid for Yahoo resembles News Corp.'s offer for Dow Jones. Both came in with high bids that made it very difficult for another bidder to spoil the party.
  • Private equity is on the sidelines. Leveraged buyouts don't work when the credit market is on ice. It's highly unlikely that any private equity firm could cobble together $44.6 billion without rounding up a bunch of partners. And herding multiple parties isn't easy.
  • Google can't bid alone due to regulator concerns. Regulators are likely to frown on a Google offer for Yahoo. These regulators may not like Microsoft's bid either, but the deal lines up better. Google can raise a ruckus, but may not be able to do much more.
  • The longer Yahoo holds out the less likely any player will step up to the plate. Is there any benefit of jumping in the pool first?

As Yahoo's options are checked off the only move the company has is to outsource search to Google in a move Citigroup estimates would boost earnings by 25 percent. However, outsourcing search to Google may also raise regulator hackles. And if you're a Yahoo shareholder it's still unclear that outsourcing search to Google will get you more than $31 a share.

Topics: Banking, CXO, Enterprise Software, Google, Government, Government US, Microsoft, Outsourcing, Social Enterprise

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

9 comments
Log in or register to join the discussion
  • Well, if MS is persistent, they will get Yahoo. But, this is very risky for

    Microsoft. It will be fun to watch!!
    DonnieBoy
    • You are right

      it will be fun to watch Google squirm! :)
      GuidingLight
      • Actually, my bets are that Google will pick up AOL now. But, in any case,

        Google will just stick to its knitting and continue to build out data centers, improve applications, add offline capabilities, and build on the lead.

        Meanwhile, Microsoft will be bogged down in legal proceedings over the purchase of Yahoo, and then suffer through the moving all of the BSD servers to Windows, and fighting over which applications will survive. The build out of data centers will slow at MS/Yahoo at the same time that Google increases the rate of build out.

        Yang will join the management team and invest at Google after cashing in his Yahoo shares at a huge premium.
        DonnieBoy
  • RE: Yahoo's conundrum: White knights are hard to find

    No company wants to bid against Microsoft. Who got the pockets. Alone Microsoft with their free cash flow would make any company scared to try to bid. $300 billion market cap is overwhelming. Google is clearly scared. They should've never stepped into the Microsoft Office limelight. They been taking direct shots such as complaining to regulators about the search in IE7 and I think it was blatant disrespect when Google came in and got stole DoubleClick. Back then on these blogs everybody was saying that Microsoft lost out on that deal but now everybody talking bout its an bad idea doing this deal(A bunch of hypocrites). Hostile bids is hard to escape in an bad ecomony plus Yahoo is not gaining on Google when it was actually Yahoo and Microsoft that gave Google it posistion in corporate America. If it wasn't from these two companies past mistakes. Google share of the search market would've been compared to Ask.com right now. I don't own Google stock but if I did and MSFT bought YHOO. I would sell GOOG stock quickly. Oh..I forgot thats what the market doing. Google trying to delay their death because they may won the first few battles but MSFT is going for the kill.
    1g2j
    • OK. The Gig's Up!

      Even the contrived bad English can't hide you, Steve B. :):):):)
      Ania Levy
      • Oh, Darth Ballmer doesn't talk that way NORMALLY? ;)

        :pp
        drprodny
  • Darn, looks like I need

    to find a new email provider. I wonder how long the Yahoo groups will last? I guess I should start backing up my Geocities pages too. This is going to be a major pain in the neck. I really hope, but don't expect, Yahoo to tell Microsoft to put its offer where the sun doesn't shine.
    don3605
  • SAD

    That the profit for the sometimes, little value added, share holders, ultimately drives business decisions. Wheres the discussion how this benefits the consumers that makes it all run?
    westks
  • In this corner EBAY Associates and in the NIKUI : Google the 'The Mui Sumo'

    Western Civilization has been in training for this fight at the Garden for three years now; and Erishimo and "The Balmer" are finally on the marque' for a Cage Fight for the Global title of share points in the most expensive stock sell since (GOOG) went public in Japan.
    rtirman37