Yahoo Shows an Interest in AOL
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Tuesday, February 12, 2008
Now that Yahoo has formally rejected Microsoft's unsolicited $44 billion buyout bid, the Internet company has set its sights on its own deal with AOL.
Yahoo reached out to AOL to gauge the Internet pioneer’s interest in some sort of deal, according to someone familiar with the situation who spoke on condition of anonymity because the talks are private. Yahoo is contacting a number of possible partners, the source said, and it is unclear whether the company seeks a buyout or partnership with AOL.
The overture is most likely an effort to find an alternative to Microsoft’s bid in case the two tech companies engage in a drawn-out takeover battle. Microsoft made its offer Feb. 1 in an attempt to strengthen its online presence.
Yahoo yesterday spurned the bid, saying it “substantially undervalues” the company. The board of directors is “continually evaluating all of its strategic options” and “remains committed to pursuing initiatives that maximize value for all stockholders,” the company said in a statement. Yahoo declined to comment on any discussions with AOL.
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A deal with AOL, in addition to forging a search-advertising relationship with Google, is considered by many analysts to be Yahoo’s best defense against a takeover. Microsoft expressed disappointment at Yahoo’s rejection yesterday and said it “reserves the right to pursue all necessary steps to ensure that Yahoo’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”
With 137 million online visitors each month and a strong online display-advertising business that places graphical ads on Web sites, Yahoo commands one of the Internet’s most recognizable brands. It has lost ground to rival Google in Web searches and the accompanying advertising, one of the fastest-growing segments of online marketing.
Many analysts have said that outsourcing its search-advertising platform to Google could increase Yahoo’s cash flow, making the company more expensive for Microsoft to acquire. Access to AOL’s ad-supported content portal and online advertising business, called Platform A, could also bolster Yahoo’s ad network, analysts said.
Time Warner, AOL’s parent company, last week signaled that it is considering spinning off part of AOL. The Dulles campus of AOL has shed employees through layoffs during its transition from being a dial-up service provider to an online advertising firm.
By letting Google handle its search-advertising service and buying AOL’s advertising business, Yahoo could be worth as much as $40 a share, a nearly 30 percent premium over Microsoft’s original offer of $31 per share, Sanford D. Bernstein analyst Jeffrey Lindsay said in a note to investors yesterday. A deal with Yahoo could also have benefits for AOL as it struggles to compete against much larger competitors.
“AOL’s options to find a future buyer would largely disappear if Microsoft were to acquire Yahoo outright” by eliminating two potential suitors, he said.
He added that by acquiring AOL’s assets, “Yahoo could achieve cost synergies by consolidating the research and development staffs and combining the sales forces.”
Marianne Wolk, an analyst with Susquehanna International Group, said joining forces with Yahoo could be a setback for AOL, which uses Google to place ads on its Web sites.
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America Online
In April 2007, AOL President and Chief Operating Officer Ron Grant addressed the media in Bangalore, India. (FILE PHOTO) (Dibyangshu Sarkar/AFP/Getty Images)
AOL Chairman and CEO Randy Falco speaks during the Reuters Global Technology, Media and Telecoms Summit in New York on May 16, 2007. (FILE PHOTO) (Keith Bedford/Reuters)
AOL Chairman and CEO Jonathan Miller along with AOL Vice Chairman Ted Leonsis -- who is the majority owner of the Washington Capitals, Washington Mystics and minority owner of the Wizards -- met with The Washington Post to discuss AOL's new business model in 2006. (FILE PHOTO) (Leslie Walker/Washington Post)
An employee walks through one of the doors inside the lobby of AOL headquarters in November 2004. (FILE PHOTO) (Joe Raedle/Getty Images)
This 2006 photo shows the annual company volunteer day at AOL headquarters in Dulles. AOL employees packaged more than 2,000 bags for The Red Cross, Loudoun Family Services, Loudoun Literacy Council, and Emmaus Services for the Aging in D. C. (FILE PHOTO) (Tracy A. Woodward)
YouthAIDS Global Ambassador Ashley Judd spoke to more than 300 America Online employees at the company's headquarters in 2005 to promote HIV/AIDS education and prevention. (FILE PHOTO) (Tim Nguyen/AOL)
AOL and Advertising.com executives gather at AOL headquarters in 2004 to talk to the media. The companies announced that AOL had agreed to pay $435 million to acquire Advertising.com, a provider of interactive marketing services. In photo, left to right: Advertising.com CEO Scott Ferber; Advertising.com Chief Product Officer John Ferber; AOL Vice Chairman Ted Leonsis; AOL Chairman and CEO Jonathan Miller. (FILE PHOTO) (Rick Kozack for AOL)
The photo for this illustration was taken in New York in 2006. Here, a collection of compact disks containing promotional software for AOL's Internet service is shown. (FILE PHOTO) (Mark Lennihan/Associated Press)
In 2003, then-Virginia Gov. Mark Warner speaks during gathering at AOL headquarters in Dulles prior to the ceremonial signing of an anti-spam bill. Shown listening to Warner is, from left: AOL executive Ted Leonsis; president of the Northern Virginia Technology Council, Bobbie Kilberg; Virginia Attorney General Jerry Kilgore and Virginia State Rep. Jeannemarie Devolites. (FILE PHOTO) (Rich Lipski)
This 2002 photo shows the outside of AOL headquarters in Dulles. (FILE PHOTO) (Kenneth Lambert/Associated Press)
In this Dec. 11, 2001 photo, Robert Pittman, chief operating officer of AOL Time Warner, presents his keynote address to Internet World Fall 2001 at New York's Javits Convention Center. (FILE PHOTO) (Richard Drew/Associated Press)
This photo taken Feb. 29, 2000, shows AOL Chairman and CEO Stephen Case, left, and Time Warner Chairman and CEO Gerald Levin as they prepare to testify before the Senate Judiciary Committee in Washington, D.C. about the merger of AOL and Time Warner. (FILE PHOTO) (Mario Tama/AFP)
AOL CEO Gerald Levin is shown speaking before the House Commerce Telecommunications Subcommittee in Washington in this September 27, 2000 photo. (FILE PHOTO) (Brendan Mcdermid/Reuters)
In this 2000 photo, Steve Case, left, Chairman and CEO of America Online, hugs Gerald Levin, Chairman and CEO of Time Warner, following a press conference in New York during which the two companies announced that AOL would buy Time Warner for about $163 billion in stock. At the time, the merger was considered to be the biggest business deal in history. (FILE PHOTO) (Mike Segar/Reuters)
This 1999 photo shows James V. Kimsey, founding CEO and Chairman Emeritus of America Online. (FILE PHOTO) (Philip Bermingham Photography)
In this March 13, 1995 photo, Microsoft CEO Bill Gates, left, and America Online CEO Steve Case address the Microsoft Professional Conference for the Internet. (FILE PHOTO) (Lou Dematteis/Reuters)
Signs inside the lobby of AOL's Dulles headquarters are seen in this 2004 photo. (FILE PHOTO) (Joe Raedle/Getty Images)
The lobby inside AOL's headquarters is seen in Dulles. The firm, which is owned by media giant Time Warner, has seen its number of subscribers shrink in recent years amid fierce competition. (Joe Raedle/Getty Images)
“If AOL were to switch to Yahoo, it would see a revenue step down” because it would lose access to Google’s network of advertisers, she said. “If AOL’s looking for a short-term gain, this many not give it to them.”
Some analysts say making alliances with other Internet firms may be a negotiating tactic by Yahoo to force a higher offer from Microsoft. An analyst argued that such pacts may not be enough to outweigh Microsoft’s offer.
“If you put every single option to work, it still wouldn’t amount to the value that Microsoft is offering,” said Scott Kessler, an equity analyst at Standard & Poor’s. “If you do the math, really there is only one option at this point — the deal with Microsoft.”
Yahoo shares rose 67 cents yesterday, to $29.87, a 50 percent increase over its price Feb. 1, when Microsoft made its offer.
Staff writer Peter Whoriskey contributed to this report.
Tagged: AOL, business_news
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