Author Michele Gershberg, Reuters
NEW YORK - Yahoo Inc. faced growing pressure Sunday to find an alternative strategy to a $47.5 billion US takeover offer from Microsoft Corp. after the software maker walked away over a major disagreement on price.
Yahoo is likely to push for an advertising partnership with the web search leader Google Inc. to help boost near-term operating performance, sources familiar with the matter said.
It is also still pursuing a deal with another Internet media and advertising major, such as Time Warner Inc.’s AOL, people familiar with the discussions said.
Expectation that Yahoo chief executive Jerry Yang has another strategy up his sleeve could help mitigate a steep descent for the company’s shares today, but he will face angry questions from shareholders if nothing materializes.
“There are two things that could support the stock: the potential for
Microsoft to return and the potential to do a Google deal,” said Clayton Moran, analyst at Stanford Group.
Moran said Yahoo shares could fall to the mid- to low-$20 range from a $28.67 close last week. It’s still higher than Yahoo’s close of $19.18 on Jan. 31, the day before Microsoft announced its offer. Microsoft sweetened its initial $31-per-share offer to $33 on Saturday, but withdrew from talks when Yang sought $37.
Yahoo is conducting tests with Google to outsource some of its search listings to its arch-rival. It has also held talks in tandem with AOL and Rupert Murdoch’s News Corp.
“It increasingly appears like Yahoo will pursue a Google search partnership,” said Moran, who favours a Microsoft buyout. “Given Google’s position (in the market), a partnership with them cedes control and limits the long-term value creation for Yahoo.”
Microsoft chief executive Steve Ballmer portrayed Yahoo’s options as particularly stark in a letter to Yang, suggesting any tie-up with Google would preclude a deal.
He also warned Yahoo it would give up its relationship with advertisers by coordinating with Google and could lose some top engineering talent.
Some analysts dispute the idea, saying Yahoo’s operating results would certainly benefit from a Google partnership.
Other Google partners, including IAC/InterActiveCorp.’s Ask.com, have structured deals that keep them in control of their advertiser ties, said Jeffrey Lindsay of Sanford C. Bernstein.
Lindsay estimates Yahoo could be worth up to $35 per share if it forges a Google deal, and could nudge that higher to $37 per share with additional job cuts. But if there are no partnerships in the offing, that value drops to $25 per share, he said.
