Rumour: Microsoft to Finance Yahoo Takeover

by Matt Klassen on October 25, 2011

As Microsoft CEO Steve Ballmer sees it, his company was “lucky” that its proposed $47 billion acquisition bid for Yahoo was turned down by the Internet giant back in 2008, with the latter having seen its overall value plummet over the past few years. What Ballmer might really mean, however, is that his company is lucky to once again have the opportunity to acquire Yahoo, but this time at a fraction of the price.

It’s been a struggle for Yahoo of late, as the company seemingly lacks the vision and wherewithal to compete in the modern Internet market. Interestingly enough though, the company’s Internet properties, its search engine included, still get a substantial amount of traffic, a point that is likely an attractive carrot for prospective buyers.

But as potential deals go this one is certainly unique, as Microsoft, a once rebuffed suitor of Yahoo, may not be looking to acquire the company outright, but instead may opt to play financier in some joint venture with other interested parties.

As I said, as deals go this one is certainly unique, as a Wall Stree Journal report indicates that Microsoft is actually not interested in buying Yahoo outright. Instead, Microsoft is in discussions with two other interested parties, Silver Lake Partners and the Canada Pension Plan Investment Board, that would see Microsoft play financier in this joint venture, loaning the other two companies the money needed to purchase Yahoo in exchange for shares in the company, a say in the future of the company, and likely some search engine partnership agreement.

But why would Microsoft want to bankroll this deal? In today’s fragile economy, taking on the role of financier may turn out to be substantially profitable for Microsoft. First, the company will get some sort of stake in Yahoo; a partnership that I wager will mean increased traffic for Microsoft’s own Bing search engine and, of course, shared advertising revenues.

Second, as Anupreeta Das and Gina Chon of the WSJ explain, “Owning a chunk of preferred stock in Yahoo would allow Microsoft to recoup its investment before owners of common stock and some other types of investors. Similarly, lending to the new owners at a high interest rate would help Microsoft make a return on its investment even if upside on the deal proved limited….” Of course it also never hurts to eliminate a little competition.

But even if Microsoft considers itself fortunate that its acquisition proposal for Yahoo fell through back in 2008, if the software giant is interested in Yahoo the acquisition may still not be as simple or affordable as it sounds.

In a time when Yahoo is undergoing a strategic review of its business structure and practices, there are reports of several other potential suitors interested in purchasing the company, unwanted competition, particularly from China, that may once again drive Yahoo’s purchase price up.

That said, all of this speculation still hinges on whether or not Yahoo is actually interesting in entertaining acquisition offers; a point that once decided will undoubtedly spark a flood of offers. Let the bidding begin.

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Written by: Matt Klassen. Follow by: RSS, Twitter, Facebook, or YouTube.

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