What’s going on with Yahoo & Microsoft?

Are you tired of reading about Yahoo and Microsoft on every blog under the sun? I know I am. And as a result, we haven’t mentioned it here in an attempt to NOT bore you to tears. However, there is now so much sordid speculation, rampant rumor and pundit pondering that I thought it would be useful to sum some of it and see what’s really happening.

Let’s face it, the coverage regarding the potential Microsoft and Yahoo love connection has been everywhere for a week now, and everyone has an opinion. Seriously, I headed down to San Diego this weekend and even my boat-builder traveling companion was quizzing me on details and offering his personal insight. You can’t escape it, no matter how far away you drive.

And now the conversation is getting even bigger with news that Yahoo will reject Microsoft’s $44.6 billion offer because they feel like it undervalues their company at only $31 a share. Yahoo says they won’t take any less than $40 a share or more, a statement that Robert Scoble has called arrogant. (Pot, kettle, anyone?) It’s possible that Yahoo is just trying to play hardball and get Microsoft to make a counter offer, but what if that doesn’t happen? Nathan Weinberg offers up some possible scenarios for Microsoft, but let’s take a look at Yahoo. What are their options?

• Microsoft forces a hostile takeover: If Microsoft is really serious about buying out Yahoo, they can start pressuring the Yahoo board and talking with shareholders individually to force a vote. If you’re a Yahoo shareholder not too excited about the path Yahoo is on or liking the idea of getting bought out by some deeper pockets, becoming a subsidiary of Microsoft may start to look pretty appealing. It’s worth noting that Yahoo will make this scenario somewhat difficult due to the poison pill (via SEL) they adopted in 2001. What this does is allow shareholders to buy Yahoo stock at a bargain price in the event Microsoft starts to accumulate too many shares. This, in turn, increases the number of shares Yahooers own, making it harder for Microsoft to buy them out. Exciting, right? Absolutely. If this happens, SEO blogging in 2008 is going to be a lot of fun. You’ll get to hear all about the riveting antitrust meetings and get to blog "leaked" screenshot of the crappiest, most overhyped search engine to date. Huzzah!
• Yahoo takes help from Google: If Yahoo isn’t okay with being bought out by Microsoft, would they perhaps be open to forming an alliance with Google? Maybe. God knows Google doesn’t want to see Microsoft and Yahoo team up. They’re all about "preserving the underlying principles of the Internet" where Google has more money than everyone else and can tell people what to do. While Google would never get passed antitrust regulators if they tried to all out purchase the company, they may be able to offer some financial assistance if Yahoo decides they want to go it alone. Also, remember that Google owns a 5 percent stake in AOL, which just so happens to related to our next possibility…
• Yahoo partners with AOL: It’s been rumored before and speculation has lit up again thanks to Yahoo’s current situation. If Yahoo were to buy AOL, they could increase their cash flow and strengthen their content network by leveraging all of the AOL entertainment properties. You also have to consider that AOL is owned by Time Warner, which also owns properties like CNN and others. Getting in good with Time Warner now could open them up to lots of new and exciting partnerships down the road. A Yahoo/AOL merger may make some sense from a business perspective, you have to wonder whether or not it would be damaging to the brand. What kind of faith are you going to instill in stockholders and users when you pair with a company that is already seen as dead in the water?
• They go it alone: It’s possible Yahoo will be able to stay out of Microsoft’s clutches and decide to keep on the path they’ve been going. It will be more difficult now that Microsoft has made an offer and publicly stated that they think Yahoo is in need of saving; however, it is possible. If they do go it alone they’ll need to start building out their verticals and conquer the niche market. Really, they’ll just need to start doing something. Otherwise, it’s just a matter of time because they’re swallowed up by a bigger, more aggressive fish.

Honestly, it’s really too early to know what’s going to happen with Yahoo. There are so many factors and variables that come into play that there’s no telling what they’ll do. Maybe it will be a completely different company that swoops in to purchase them and save from themselves and others. Whatever happens, it’s going to be a long time before we see any real action, even if some sort of deal were to be made in the next few weeks. So unless you’re a shareholder, let’s try not to freak out too much. Sound good? Okay, then.

Lisa Barone is a writer, content marketer & VP of strategy at Overit Media. She's also a very active Twitterer, much to the dismay of the rest of the world.

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