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A turbulent week for Yahoo

Eden Zoller | July 23, 2009
Improved earnings, but tough times continue for Yahoo

In this context it is not a huge surprise that the Yahoo-Microsoft dance has picked up again. The two companies have been in on-off talks about some sort of partnership for some time, which culminated last year in Microsoft putting in an offer of around $47.5 billion to acquire Yahoo, which Yahoo rejected. The latest talks seem to be focused on partnership rather than full merger, which we think makes better sense. A partnership where the line of sight is 100% focused on driving advertising revenues is likely to be more effective than an all-out merger, which if anything would put a drag on resources and focus in the short term as two very big companies grappled with the huge task of combing and streamlining assets.

In this context it is no surprise that the Yahoo-Microsoft dance has picked up again, albeit at a different tempo. The two companies have been in on-off talks for some time, which culminated last February with Microsoft putting in a bid for Yahoo that valued the company at around $45 billion, an offer that Yahoo rejected. The simple line is that a combined Microsoft and Yahoo would prove a force capable of giving Google a run for its money. Google has 65 per cent of the US search advertising market, followed by Yahoo with a 20 per cent share and Microsoft with 8 per cent, according to recent figures from Comscore. However, reports suggest that the latest talks are focused on a partnership rather than a merger, which we think is a better approach. A partnership where the line of sight is 100 per cent focused on driving advertising revenues is likely to be more effective than an all-out merger that would put a drag on resources and dilute focus in the short term, and in general create more problems than it would solve as two very big companies grapple with the huge task of combining and streamlining assets.

Eden Zoller is principal analyst at Ovum.

 

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