Will Microsoft be brave this time and follow through with a new bid for Yahoo?

Back in 2008 Microsoft bid $33 a share for Yahoo (about twice its current worth) but the bid fell fell through because (a) Yahoo founder Jerry Yang held out for even more money or (b) Microsoft CEO Steve Ballmer (pictured) got cold feet and used them to walk away from the deal at the last minute.

Take your choice but Yahoo, not that long ago a bigger force on the internet than Google, is now back in play following the enforced departure of CEO Carol Bartz and its subsequent statement that it was ‘reviewing its options.’

This is corporate speak for putting the company up for sale.

The company is now in talks with a handful of private equity operators and, once again, Microsoft. But in the intervening three years it’s become clear that the most valuable aspect of Yahoo is its 42 per cent stake in controversial Chinese internet company Alibaba (all Chinese internet companies are ‘controversial’ thanks to the terms under which they operate). Alibaba is currently valued at around $32bn.

Yahoo also owns a valuable 34 per cent stake in Yahoo Japan (Japanese telecoms giant SoftBank owns 41 per cent). So we have two more potential bidders to add to any auction, Alibaba and SoftBank.

This rather complicates matters for Microsoft which has a ten-year deal with Microsoft to combine resources in search and online advertising. On the one hand it will want to protect these interests and may see a formal takeover as the best way of doing so.

On the other it may be fearful of being forced to overpay because of the perceived value of overseas assets it may not want or need. Microsoft’s online business MSN may not be profitable but it’s certainly global.

The private equity companies in the frame would almost certainly split up Yahoo and flog off its various bits. Alibaba or SoftBank might prefer to take charge of this process themselves.

So it’s really all rather complicated, an exercise in financial engineering as much as a means of reviving Yahoo which, in the United States at least, remains one of the biggest website businesses around.

Back in May Microsoft paid an eye-watering $8.5bn for loss-making free internet telecoms business Skype for reasons which weren’t very clear then and still aren’t. Yahoo will cost a lot more than this, many times more depending on the interest shown by the likes of Alibaba and SoftBank.

Microsoft’s Alpha CEO Ballmer has lost most of his recent battles with the likes of Apple, Google and Facebook (which lured away advertising boss Carolyn Everson in March).

Yahoo could be a make or break deal in terms of his reputation and prospects (although not the company’s bulging bank balance) at Microsoft.

His willingness to see this bid through may depend on the progress Microsoft has made in pointing Skype at a profit. He also has to show that the new tie-up between Windows and handset maker Nokia can work. The last thing he or the company needs is the reputation of a retirement home for unprofitable internet properties.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.