Content Matters

First, congratulations to the Giants on a great super bowl win.  My household roots for Gang Green, but since they were eliminated back around October, we've been pulling for the Giants (and no Jet fan could, in good conscience, root for Bill Belichick).

Between the super bowl and super tuesday, the business news has gone to the back burner for much of the past week (at least for me).  I finally got the chance to catch up on some of the analysis on Microsoft's proposed acquisition of Yahoo.  Here are some of the highlights, in case you've been similarly distracted.

Henry Blodget at Alley Insider suggests that the merger would be a disaster. They point to the pre-deal purgatory, where Google will continue to take market share and Yahoo will lose talent while the two companies navigate the antitrust process. More importantly, he notes that the big battle between Google and Microsoft is cloud computing vs. Windows and software. If Microsoft is focused on defending the traditional software approach, it can't easily embrace the free and open environment that Yahoo will need to thrive.

Blodget does suggest a solution, however. He proposes that rather than fully merge the companies, Microsoft merges its Internet properties (plus $10-15 billion in cash) into a stand-alone Yahoo in return for 51% of the combined company. The stand-alone business will be able to focus solely on competing with Google and will have a large war chest to do so.

TechCrunch reports that News Corp has been frantically working the phones in an effort to get private equity money to put together a syndicate for a counter-offer.  The $45 billion price is too high for a media company like News Corp to bid on its own and at that price, it doesn't look as though the PE firms will want to participate. As a strategic buyer, Microsoft can pay a premium that financial buyers can't.

Paul Kedrosky notes that Google will come out heavily against the deal from an antitrust position.  While I doubt that will hold up in the end, it could make the deal more difficult and could serve to distract Microsoft and Yahoo further, while Google focuses on increasing its market share.  As Kedrosky points out, this is turnabout for Microsoft's tactics on the Google-Doubleclick deal. In many ways, Google wins regardless. They can slow down the closing of the deal, which helps their market share. And, if the deal closes, it strengthens their case for future acquisitions.

In terms of the deal's effect on other Internet M&A, Bill Burnham notes that consolidation removes one potential acquirer in the market.  The GYM threesome becomes two, with AOL a weak third.  Competition between Google, Microsoft and Yahoo has driven M&A activity and prices. Add in the current instability at IAC and it could reduce the number of active acquirers in the market.  Dave McClure (in comments on Fred's post) notes, however, that with Microsoft's treasure chest, Yahoo could become more acquisitive.

Fred suggests a path for Yahoo out of Microsoft's bear hug by outsourcing its search to Google, paying out a shareholder dividend for the Alibaba and Yahoo! Japan interests and splitting the remaining company into several standalone businesses. Of course, had Jerry Yang embraced a path like this a few months ago, the share price would not have dipped so low and the Microsoft offer probably never would have happened.

Kedrosky adds that he sees a 25% chance that Yahoo might take such an approach, outsourcing its search to Google and perhaps replacing Yang, though he points out that a direct counter-offer from Google is not in the cards.