Filed under: Deals, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX)
Yahoo! (NASDAQ: YHOO), still trying to prevent a deal in which it would be taken over by Microsoft (NASDAQ: MSFT), has stepped up talks with Time Warner (NYSE: TWX) about merging AOL into the massive portal company. According to The Wall Street Journal, “the Time Warner talks have stepped up as Yahoo tries to nail down its alternatives to Microsoft’s Feb. 1 offer, which Yahoo rejected as undervaluing it. The scenario under discussion would involve folding AOL into Yahoo with Time Warner taking a sizable minority stake in the combined entity.”
Even though the combination would create an world wide web company with an audience much more massive than Microsoft’s or Google’s (NASDAQ: GOOG), it isn’t clear that Yahoo!’s shareholders would find it an acceptable alternative to the deal with Redmond. The offer of a fixed $31 is much high than the $19 where Yahoo! traded just a few weeks before the takeover was proposed.
The combination wouldn’t create a challenge to Google in the search business. AOL’s search market share is generally put at about 5% of the US world wide web population. Search revenue is viewed as a faster growing category than display advertising, where Yahoo! and AOL do well. Microsoft and Yahoo! together would have about 30% of the search market in America. Google has over 60%.
Even though combining AOL and Yahoo! would grant some redundant costs to be taken out, both companies are experiencing slow ad revenue growth. Putting the two companies together won’t solve that.
The deal won’t work for the Yahoo! board, already under pressure to take the $31 from Microsoft and run.
Douglas A. McIntyre is an editor at 247wallst.com.
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