Innovation

The top five shots fired as Microsoft-Yahoo deal turns into war

The Microsoft-Yahoo deal has officially descended into war, with a major shots now being fired by both camps. Here's a look at the top five bombshells that could soon tip the deal one way or another.

As the Microsoft-Yahoo officially descends into war, one thing is now very clear: Yahoo executives will do almost anything to avoid having to go down the aisle with the world's biggest software company.

After Microsoft CEO Steve Ballmer publicly threatened Yahoo with a hostile takeover over the weekend and then Yahoo CEO Jerry Yang fired back on Monday morning saying that Microsoft's current offer was "not in the best interests of Yahoo and our stockholders," things reached a fevered pitch yesterday with both sides making major moves to bring this courting to an end.

Here's a look at the top five bombshells — in the past 24 hours — that could soon tip the deal one way or another.

Yahoo ad deal with Google

Google has meddled in this deal before and with things moving toward a crescendo Yahoo and Google finally agreed to a test that could grow into a larger deal. Yahoo will place Google AdSense ads on about 3% of its search results pages. This could turn into a big short-term revenue gain for Yahoo, but it calls into question the millions they recently spent on their own competing search ad platform ("Panama") and it limits Yahoo's long-term potential for revenue growth. But, basically, if Yahoo is going to be relegated to becoming a lap dog, it would rather be Google's lap dog than Microsoft's.

Yahoo in talks to merge with AOL

Yahoo has re-engaged Time Warner about doing a deal to combine the Internet assets and operations of Yahoo and AOL (which Time Warner would love to unload). This deal would ultimately have to be combined with a Google AdSense to make sense economically. That's not a stretch since AOL already has a similar deal with Google. While AOL has some strong assets — especially is nascent ad network — it has frankly been in a nosedive for years, and trying to turn it around while Yahoo also deals with its own internal problems sounds like a scenario for disaster.

Microsoft in talks with News Corp to make joint bid

News Corp. was originally one of the suitors that Yahoo approached to fight off the Microsoft deal and Rupert Murdoch was interested in giving MySpace to Yahoo to run in return for a nice stake in Yahoo. Murdoch eventually decided that outbidding Microsoft wasn't possible so it walked away from table. However, The Wall Street Journal has reported that Microsoft and News Corp. are now in talks to put together a joint offer. This would likely involve MySpace — which has probably reached its peak value or is just past it, as Larry Dignan noted — and some cash from Murdoch to raise the price of the deal. This sounds like a trump card for Microsoft to use to increase the value of its offer to beat any deals that Yahoo negotiates.

Legg Mason says it will support an independent Yahoo

Ballmer's threat to lower Microsoft's offer and proceed with a hostile takeover if Yahoo did not come to the table to finalize a deal by April 26 was not well received by Yahoo shareholders. In fact, it led one of Yahoo's major shareholders, Legg Mason, to say that it would support Yahoo's move to remain independent if Microsoft lowered its offer.

Microsoft lawyer raises anti-trust flag on Yahoo-Google deal

As reported by News.com this morning, Microsoft general counsel Brad Smith stated, "Any definitive agreement between Yahoo and Google would consolidate over 90 percent of the search-advertising market in Google's hands. This would make the market far less competitive, in contrast to our own proposal to acquire Yahoo." That's code for: We will pursue anti-trust litigation with the U.S. government if Yahoo tries to kill our takeover bid by selling its search traffic to Google.

About

Jason Hiner is Global Editor in Chief of TechRepublic and Global Long Form Editor of ZDNet. He writes about how technology is changing the way we live and work in the 21st century. He's co-author of the book, Follow the Geeks.

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