The UK’s Times Online is reporting that “Microsoft is in talks to acquire Yahoo’s online search business for $20 billion.” The report is filled with lots of juicy, specific details that lend it credence, but don’t make a lot of sense when you drill down into them.
The new deal, according to the Times Online, is a complex transaction that involves Microsoft supporting a new management team made up of former AOL CEO Jonathan Miller and former Fox Interactive Media president Ross Levinsohn, who are investing partners at Velocity Interactive Group. Levinsohn, however, tells VentureBeat there is “no truth” to the story. (Although there were rumors a while back that Microsoft wanted Levinsohn and Miller to run Yahoo, which is where this might be coming from).
And unlike Microsoft’s earlier offer to buy Yahoo’s search business outright, this one is for a long-term operating agreement. In fact, the $20 billion deal that sells the story in the headline is a red herring that refers to a call option that is part of the supposed deal. Here is how the story actually describes the supposed terms of the deal:
Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors.
This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo.
The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services.
It is expected that the operating agreement would boost Yahoo’s income by as much as $2 billion per annum.
So the deal is really that Microsoft would put up $5 billion to help a new management team buy preferred shares and warrants that would give it a 30% stake in Yahoo. In return, Microsoft would get a 10-year operating agreement to run Yahoo’s search business.
Let’s just compare this to the deal Microsoft previously offered to buy Yahoo’s search business outright.
That involved an $8 billion direct investment in Yahoo in exchange for 16% of the company, plus $1 billion in cash for the search business. And that was expected to generate an extra $1 billion in operating income.
So how does the new deal generate twice as much income going into an economic downturn? And why would Microsoft agree to anything other than complete ownership of Yahoo’s search business? And how does the search business go from being worth $1 billion earlier this year to $20 billion in two years?
Like I said, it doesn’t make much sense.
Will Yahoo search and MSN blend into ONE search using the same algos – as well as having the same news ^ topics on their homepages?
whatever. yahoo is dead. Carl Icahn is preparing up yahoo for Microsoft.
Correction. Yahoo is not dead….and never will be. Please pay respect for the people/company where you had your first email ID. It is just that Yahoo is under-financial constraints and poor revenue structure. All Yahoo needs now is a good leader. People like Icahn just wants to make more money. But $20B for just search services is probably not worth from Microsoft’s perspective.
http://www.livbit.com
True. Yahoo is just suffering from global economic jolt from which other giants also (to confirm just compare the share value of GOOG and MSFT for last 1 year period). Its just a matter of time that yahoo will be back. Yahoo is doing wonderful in capturing localized services and certainly Yahoo mail service and messenger is number in many countries (cant give exact data but its true). so just don’t read two liners and make your mind about great company.
Very difficult to beat google. Google has strong advertising mechanism and well planned.
chandra
http://www.myjil.com
Everyone want’s more money, but who is going to take over?
another company or another leader?
Will Microsoft use Yahoo to fuel their future change to Search Live in the process of making it “Kumo”?
Yep. http://tinycomb...yahoo-and-kumo/
The whole Microsoft deal made no sense when it was first announced and makes no more business sense now if this holds true. Microsoft is better off trying to do a massive buyout offer of Google because that is who will really kill them in the future if they don’t smarten-up fast. Yahoo is a waste of Microsoft’s time and resources.
Jon
http://DreamClue.com … get the message!
Erick, you’re wrong on this one. The deal is real. It will be announced next week.
I don’t buy it either. Ballmer’s already rejected Yahoo in the harshest possible terms.
Even if the deal is real, it’s in their best interest to keep it on the DL until everything is figured out and agreed upon.
I wouldn’t put it past him to be making these statements simply to drive the price down as low as possible.
You cant beat Google anyway. But you will save our time a little bit. We compare our clients’ website rankings after using our SEO tricks on Google, Yahoo and MSN. If this really works out, we need to work on 2 instead of 3.
Dear SEO, its matter of time and business life cycle that some times one company performs well than other one so it cant be always true that GOOG cant be beaten. Its matter of time and just matter of hard work. You may not be surprised that if same is said about wikia or even yahoo after 1 year that they cannot be beaten
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You are correct. But I had a client saying MSN displays some unpaid links as sponsored links in searches. We always love quality products like Google for Search. Google is too far to reach as of now. Things may change who knows.
Someone needs Yahoo! stock prices to rise post-Thanksgiving break. That’s why.
Again? Ugh. I’ve so over it already. Just wonder if I have a job in 10 days or not.
Makes sense to me. MSFT loans new mgt $5 billion so they have skin in the game, new mgt gains cred when raising the other $5 billion & has a compelling incentive to save the sinking ship. MSFT can buy the search biz at Yahoo for $20 billion once the mess has been cleaned up.
This deal makes no sense. I don’t believe it.
The era of making money from software business ended. Microsoft knows well about it and trying to increase its market share in search marketing. The “Sun-Microsoft Search Deal” is an obvious step for it. And now Yahoo-Microsoft Search Deal” This time They should reach and agreement. If not, they both will be history.
Eric,I can’t agree with you more.But how does this story come out?I guess maybe the writer heard something from people inside Yahoo british or some other sources.What do you say?
BTW my email is chenkeyu@corp.netease.com.Talk to me on email if you want.Thanks
This deal doesn’t look very convincing to me also. But you never know who is dancing till the masks come off.
Kara from Allthingsd.com has also confirmed that this is just a rumor.
http://kara.all...y-yahoo-search/
It’s really hard to prophesy if such deal is good to the internet as they suggest nor google deny..
I want that they dont merge. Because the more the better for us. If the competition is high, we, end users, will get many free service. Free is good
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So, I want a competitive market rather than monopolized by Google and Microsoft
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what is oof?
The $1b a year old deal was $1b in rev. This equates to $2B in income as yahoo sheds all the jobs of people who support the yahoo search engine and msft takes it over.
The $5b preferred shares issued to msft should be given back to the shareholders as a one time cash dividend of $5 per share to prevent any dilution effects.
This deal will be leaked to the press late tonight or early tommorow. This times reporter some how got the news early before the ink was dry on the deal is my guess…
Yahoo I was hoping could still do more and not become merged with Microsoft. But looks like it will happen.
I was hoping Yahoo could pull it off not be merge with another company.
ohh. really hard to believe…
I think its just another “Microsoft Yahoo” Rumor.
Despite pretty weak pr efforts by Yahoo, Microsoft needs Yahoo much more than vice versa. While Microsoft continues to strive towards becoming a search leader, it still struggles to gain market share and struggles to create the products that people really want. Yahoo already has formidable market share and already has a variety of products that users love.
lol….. MS can have it for less then 20 billion
Yeah. I don’t think this is going to happen. I’ll file this one under “Too Good to Be True.”
NS
http://scienced....wordpress.com/
the deals never gonna happen
I’ve so over it already. Just wonder if I have a job in 10 days or not.
What they both do in the internet word hope that it is good for them