At the start of the Microsoft/Yahoo saga we reported that News Corp. was scrambling to put together a bid to compete with Microsoft, but backed down because they were unable to find outside funding to make the deal lucrative enough (the sorry state of the debt markets contributed to the problem).
Yesterday Silicon Alley Insider reported that talks between the two were continuing. We’ve confirmed the rumor – Yahoo and News Corp. are in the middle of marathon discussions, and have more details.
According to our source, the deal structure would spin off Fox Interactive Media (the primary asset is MySpace, but IGN, Scout Media, Photobucket, Fox Sports, AmericanIdol.com, Flektor, Ksolo; plus investments in Hulu, Simply Hired and Snocap are also assets of FIM) into Yahoo, along with a big cash injection from News Corp. and an unnamed private equity fund. The total investment would be valued at around $15 billion.
Yahoo would be valued at somewhere around $50 billion before the transaction, north of Microsoft’s $44.6 billion bid. That would leave News Corp., plus the private equity group, with more than 20% of the combined entity. They’d be the largest single stockholder and effectively in control of the combined Yahoo/FIM entity and their nearly 150 billion monthly page views (which would be second only to Google).
The negotiating team is said to be trying to iron out the details in the next 48 hours, in time for Yahoo’s upcoming board meeting to review its options.
Microsoft is largely expected to increase their bid to the $35 range in the next couple of days based on Yahoo’s formal rejection of their first offer (effectively raising their bid to $50 billion). Any competing offer needs to be in that range or higher.
One major snag – it is widely believed that, even with a News Corp. deal, Yahoo would need to outsource search marketing to Google to make the numbers work. While Google is likely happy to do that deal, it’s unlikely U.S. regulatory agencies would approve it (we discuss this in detail here). Without the revenue boost and cost savings from outsourcing, the News Corp. bid may not pencil out.
Yahoo, of course, isn’t too worried about that right now. All they want is any kind of bona fide competing bid to at least get Microsoft to increase their offer. Yahoo execs are saying privately that they think a Microsoft acquisition is now fait accompli. Still, if News Corp. can somehow make a compelling offer (and getting a private equity group on board was a huge first step), Yahoo’s board may recommend the deal to stockholders.
Either way, Yahoo! should be thankful (to all bidders), but also should stay calm.. Yahoo! is still #1 destination and has great assets, though their upside potentials are yet to be realized..
It would be interesting to see how News corp would integrate MySpace into the Yahoo Network.
Yahoo might develop into a search engine with a heavy social / personalization flavor. And Yahoo Groups and their acquisitions would mash up with Flickr
How much is YHOO going to pay off News Corp for this obviously sham bid when MSFT finally buys them out for a few $$s higher?
No not NewsCorp! Gees I would rather they went with Microsoft. Imagine yahoo looking more like MySpace. Yuk!
all of this occurs against a backdrop of the denuding of the Yahoo management corps. Both good and deadwood, the exodus is breath taking in its scope.
The exit of Brad Horowitz is particularly troubling, as he was the new product unit’s conscience. The fact that he was lured to Google, and furthermore that the seed was planted long before the rains came, bespeak a culture of ‘rot from the inside’, that will be difficult to redress.
Any new partner or buyer will no doubt take this brain drain into account. Conversely, it also seems that some of the most redundant management appendages have been loped. These are people, however, and we should keep that in mind.
If murdoch gets Yahoo i’m dropping them completely.
I think the clear picture will come out once after next 48 hours depending on how well the negotiating team present their offer.
Yahoo search&MySpace social media mashup. One more monster
what is “Fait accompli”?……..was that a typo on last lines?
Microsoft’s bid is solid. A half-assed bid by News Corp and another private equity group is just another ploy by Yahoo’s top brass to protect their jobs.
Only KKR or Blackstone has the resource to match the bid. However, KKR is too busy with TXU and First Data, Blackstone with Hilton,etc.
@5 The exit of Brad Horowitz is meaningless. Why have you seized on it as a sign of doom and gloom? It means what it means, that Horowitz took a better offer at G. It doesn’t mean yahoo is rotting from the inside!
Anybody know, is it $15 billion for Yahoo! *and* FoxyTunes, or just plain Yahoo?
I bet Yahoo board is pretty happy with the News corp. struggle, that would at least result in an increase in the company’s valuation.
Yahoo is definitely going to be acquired, and if Microsoft wasn’t prepared to face the competing offers, they wouldn’t have opened the can of worms in the first place.
Wrote about that on my blog http://technozzle.com/?p=99
fait accompli – An accomplished fact; an action which is completed before those affected by it are in a position to query or reverse it. (via). I had to look it up, thought I would save others the trouble.
And yes, it did mean what I thought…
Michael, the name of the company/brand is Yahoo! and not what you have mentioned
What is Rupert really bidding on?
-Yahoo Mail (Most of Yahoo’s Page views >50%)
-Search
-Limited pageviews on Y!’s other properties
-Right Media ($680million)
-Blue Lithium ($300million)
Does that add up to $44 billion? Additionally Y! hasn’t had the time to integrate their acquisitions in the Network Space let alone the new acquisition with Maven.
I don’t see the value here for Rupert’s shareholders unless he is looking to Y! to run his interactive division (FIM) and take MySpace off his hands for a few years (he can let Y! do all the integration of FIM, RM, BL, etc. with direction from FOX and then pick up the controlling shares in a year or two), but even then you are looking at combining Y! with:
-MySpace
-IGN
-other FIM sites (FoxNews, etc. not included)
-SDC (ad serving technology acquired in 2006/7)
-Directa (FIM’s Latin acquisition of Digital Ventures, based in Argentina)
I’m not sure the value is there in a combined company. Lots of overlap on inventory, users, and technology. When you have 4 separate Ad Serving Technologies it is never a pretty scene. To be effective they will need to unify everything on one single platform. They may be able to play on each technologies strengths in building a single platform, but for each ad call you’ve got to have a single technology, end-to-end that has Forecasting, Sales Management, Booking, Behavioral/Profile/Remarketing, Optimization. A Media Guard type application for Social Media, Reporting, Discrepancy Resolution, Billing, the list goes on.
What they have combined are at least 4 Technologies:
-SDC known for optimization
-Right Media known for scale and exchange
-BL for behavioral
-Y! tech (sunk costs + dev team)
Aside from that, if he did buy Y! outright, what is Rupert going to do with the additional inventory? FIM currently trades 20-40% of its Ad Volume on Yahoo’s Right Media Exchange because FIM needs help in selling the inventory. What would Rupert do differently than Yahoo with Yahoo’s additional 120 billion ad impressions/month?
Advantage: M$. They’ve got the sales team (both Performance and Brand), the cash and the proven scale to make this deal happen and get higher CPMs.
@16
Valuation by parts is perhaps one good basis Yahoo! would point to and say, “massively undervalued”
After all, If Apple can come back big time, why can’t Yahoo!?
@17 that is my point is mentioning that Yahoo hasn’t had time to integrate their acquisitions with their total offering and haven’t standardized on a single Ad Serving Platform yet, but on the flipside, let’s say they do integrate everything… then what? Will Y! really take the reigns for the industry like they were supposed to or should they hop on board with M$ and try to regain the footing they’ve lost?
Does Y! have time to work with FIM?
Remember 23% of Online Advertising goes to Google (and thats mostly Search and AdSense). Once the DCLK deal is done they are going to get better crack at Display. The value prop from Google to Agencies, Media Buyers, Small Businesses, Branded sites, Social Media Sites, Long Tail Inventory will be much more attractive because of all the pieces that Google brings to the table and how easy they make it for everyone to be successful.
In any battle you have Time and Ground. If you don’t have time you had better gain some ground. Google obviously has time on their side as does M$. Y! may not have the ability to gain enough ground on its own or with FIM in the time needed to stay a leader.
@18
I’d tend to think Y! (as a company) still has time, but Y! (shareholders) might not have the patience, in that I’d tend to guess the Y! stockholders current focus is to sell their shares for a max (ie., “local-max” wrt the current bids) pricing that they can get a hold onto… as such, they wouldn’t possibly care whether it’s a sum of parts valuation or otherwise…
that may be the disaster for Yahoo as News Corp has already messed around with MySpace.
@19 agreed they have a little time, but not more than 6-9 months to really get it in gear. Definitely not enough time for a merger with FIM…
@21
Yes agree that it’d take time to integrate if with FIM… and in light of that, mightbe Y! should consider bids from Disney — no integration is needed!
Yahoo!’s biggest problem (as per ‘peanut butter memo’) is that they have all these disparate parts with no logical connection between them. Yahoo!’s business plan seems to have been to buy and develop ‘cool’ products, hope they take off, and stick their advertising on them.
The problem with this theory is that Google’s advertising gives higher ROI, and therefore gets far higher CPCs.
Apple’s turnaround (@#17) is a good example: they regrouped everything they do under one seamless identity of ‘lifestyle products’, and then charged premium prices. Thus iPods, iTunes, Macs – even Apple shops – all work together. In contrast, Yahoo! have products actually competing against each other to the benefit of nobody except Google.
On another note, from the comments it seems that half the users will leave if News Corp buys Yahoo!; the other half will leave if Microsoft buys them. But if nobody buys them, everybody will leave as their service slowly degrades compared to the rest of the internet.
I bet Microsoft will rais their offer to 51 Billion in the next 10 days. This is just a guess.
Brilliant. In addition to ideas above, this deal for Yahoo would:
–Substantially increase YHOO’s ad/marketing audience and pricing power with agencies
–Increase YHOO’s ad distribution
–Increase YHOO’s revenue and cash flow for minimal additional capex–thus improving margins
–SUBSTANTIALLY increase Yahoo’s valuation and long-term prospects
–Excluding synergies, could easily enable YHOO to grow into a $30/share company independent of MSFT
–Increase future price MSFT will have to pay for YHOO–since they will have to buy it anyway. Microsoft admitted they can’t grow organically, they’ve admitted defeat to Google, and they really don’t have any other major acquisition options–just as YHOO doesn’t have any other major potential buyers. That math works both ways…Thus, a YHOO/MySpace/NEWS CORP deal really puts the screws on Microsoft. MSFT will have to substantially increase its bid, or admit and cede defeat to Google.
Brilliant–and congrats to Yahoo’s Board and advisers if this goes through with News Corp! Yahoo shareholders should INSIST on a deal with News Corp.
It is ridiculous that Yahoo should outsource search marketing to Google. It will not cut much cost for Yahoo. And Google is going to take a big chunk from profit. So obviously that this will not do any good to Yahoo.
Yahoo could take a page from CNET’s book and sell off/deadpool their “Hanging Chad”* properties, make some strategic purchases (Bebo, Hi5, Imeem etc.) and refocus on their core, selling ads and continuing to be the world’s #1 destination.
Leadership and making Money, thats what we all expect from Y!.
*I haven’t heard this phrase before so I’d like to take credit if ti takes off
is this a joke, yahoo, what can news corp offer you, fascist television? you are a technology company, go with microsoft, if your innovation really is running slow behind the scenes, you will not pick up any speed without making better software. if you go with newscorp, I will invite everyone to gmail, and it will be you likely will become a sad waste of talent with a flashy aolish homepage.
Microsoft admitted they can’t grow organically, they’ve admitted defeat to Google, and they really don’t have any other major acquisition options–just as YHOO doesn’t have any other major potential buyers.
Its actually in Microsoft’s interest to lead the Yahoo/FIM deal to go through, if you agree with the following statements:
1. Value of Yahoo to MSFT is defensive–designed to slow Goog’s growth and mitigate market share loss to MSFT. Therefore, value of Yahoo is defined not only by synergies and ad pricing/sales, but by potential sales/market share MSFT would lose to Google WITHOUT Yahoo
2. MSFT does not have any other major acquisition options
3. Yahoo is more valuable with FIM over x time. Given that PE fund would participate, they will look for an exit eventually anyway–as would existing shareholders. However, shareholders would have to wait for value to materialize in share price, vs. receive $30/sh right now. Assuming 2-3 years for full synergies of Yahoo and FIM, $30/sh now may be more appealing depending on discount/risk.
4. MSFT would still have to buy Yahoo down the road, except they would get a 2:1 “twofer” deal that would include MySpace–despite the obvious conflict with their FaceBook Foux Pax. What would Yahoo be worth to Microsoft in 2-3 years with FIM’s assets? Now that is the real question…
I wrote a guest post on the possible impact of the MSFT-YHOO merger to web publishers who sell ads on their web site. In the short term, the picture is not pretty. The article is here: http://www.read...er_microhoo.php
A YHOO-NEWS Corp tie up could be much better, especially along the lines that Michael reports above. FIM with Yahoo would probably continue the off-network strategy and focus on creating a true online media company. That should bring welcome innovation to publisher-side solutions.
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