(By Salman - iStockAnalyst Writer)There seems to be no end to the speculation of a deal between Microsoft (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO). A story surfaced on Sunday in the Times of London which suggested that Microsoft is in talks with Yahoo to buy latter's search business for an astonishing $20 billion.
According to reports, the discussions would have put former AOL CEO Jonathan Miller and Ross Levinsohn, a former president of Fox Interactive Media, in charge of Yahoo to lead a new management team under a 10-year agreement. Microsoft would have a two-year option to buy Yahoo's search business outright for $20 billion. The report also said senior management at both companies "have agreed (to) the broad terms of a deal, but there is no guarantee that it will succeed."
Later, a few executives who are familiar with the matter denied that there are any talks between the two companies.
“No truth to it. News to us,” Ross Levinsohn said in a statement. Levinsohn called the report " total fiction."
Brad Williams, a Yahoo spokesman, said in a statement "we don't comment on rumors." Microsoft however, refused to comment.
Other experts are also pointing out that the sheer size of the deal makes it simply unbelievable.
In the middle of November, at an annual shareholders meeting, Microsoft's chief executive Steve Ballmer made it clear that the company is no longer interested in outright acquisition of Yahoo! Jerry Yang's resignation had fueled speculation that Microsoft may again reconsider buying Yahoo. Ballmer said "let me be as clear as I think I've tried to be publicly. We are done with all acquisition discussions with Yahoo." However, at that Ballmer also said he is "very open" to a partnership between Microsoft and Yahoo in the Internet-search market and that it is "an interesting possibility." Both Yahoo and Microsoft are having tough time competing with rival Google as the latter has emerged as leader in the online search market.
Earlier this year, Microsoft made an unsolicited takeover bid to buy Yahoo! for US$44.6 billion dollars in cash and stock. However, on February 11, 2008, Yahoo! decided to reject Microsoft's offer as "substantially undervaluing". On May 3, 2008, Microsoft walked away from offer. During a meeting between Ballmer and Yang, Microsoft had offered to raise its offer by $5 billion to $33 per share, while Yang asked for $37. The stock is currently trading at around one third of what was being offered by Microsoft.
A few weeks back, Google Inc. (NASDAQ: GOOG) abandoned its proposed 10 year advertising partnership with Yahoo Inc. in order to avoid a showdown with US Department of Justice. In a statement Google said that the deal "risked not only a protracted legal battle but also damage to relationships with valued partners.”
After the deal with Google collapsed, Yang said at a technology conference that "the best thing for Microsoft to do is to buy Yahoo.
On Friday, in a SEC filing Yahoo director and major shareholder Carl Icahn disclosed he’d acquired an additional 6.8 million shares or nearly 5.5% of Yahoo's takes in three transactions between Monday and Wednesday.
Yahoo! surged over 8% in extended trading on Friday. Shares are down around 60% from 52 week high of $30.25.
Disclosure: Author does not own any of the stocks discussed here.
