Microsoft Bids For Yahoo! Will Google Go For Apple?

Microsoft has made a hostile takeover offer to buy Yahoo! Inc, whose shares have fallen over 46% since their 2007 peak, and has offered to pay $44.6 billion. Microsoft had attempted to enter into takeover talks a year ago, which broke down. Competitive prospects at the time had probably led Yahoo! to rebuff the offer. The reported price offered by Microsoft then was $90 billion, thus Microsoft might be glad to have waited the year out.

This move is evidently intended to counter Google's online dominance, and make the game more head-to-head than it has ever been before. The scope of the deal and the lack of significant other players in the online marketplace will doubtless bring close regulatory scrutiny, both in the United States and in Europe. Microsoft is already under government observation in the United States, a term extended for another two years this week.

The offer was at a significant premium (62%) over Yahoo! market price, and Yahoo! stock has jumped over 45% on the news. This would be one of the largest acquisitions ever in the technology industry. The takeover approach will avoid protracted negotiations, and the constant risk of leaks. The cash-or-stock offer makes it possible to add sweeteners and difficult for most companies to counter, if there are really any that might have the stomach to go up against the Redmond behemoth.

Google was downgraded to a hold from a buy by an analyst from Jefferies and Co, citing an increased risk profile, and their stock was down over 8% on Friday. Google has reported a significant decline in margins in recently reported quarterly earnings, and mentioned 'some difficulty' around AdSense related earnings, characterized by Google as problems in their 'social networking inventory'.

Microsoft will likely leverage the strengths Yahoo! has in messaging, media and music over search. Google's search platform remains unassailable for now. It seems impossible to dislodge, not just because of search stickiness, but more so because of the quality of results. Google might have to respond by filling its own gaps in the media space, and what better way to do this than by acquiring/merging with Apple? The two companies already have much in common, and Apple's access to media companies and markets, besides computers, would enable Google to get off the online platform into the real world, as it were.