Tuesday, October 25, 2011

Google and Microsoft Yahoo Acquisition Plans

Both Google and Microsoft plan to buy Yahoo.

Both Google and Microsoft are talking with private-equity firms about possibly financing an acquisition of Yahoo — essentially standing in for the banks that typically dole out loans to pay for corporate deals. Google has contacted at least two venture capital firms to help buy Yahoo's core business. According to an expert, Google is interested in selling some advertising across Yahoo's websites.

Yahoo! had a string of bad business decisions and disputes in management and fired its CEO earlier this year. A takeover, acquisition or merger with various companies, including AOL and Microsoft is on the cards. Yahoo search is, in fact, almost completely supported by Bing, and an acquisition offer by Microsoft is seen as an attractive deal.

But aside from Microsoft, it seems another industry giant is interested in Yahoo! Google is reportedly also exploring to buy Yahoo! in an effort to bring the portal under its fold. Neither Microsoft nor Google are said to be actually interested in gaining Yahoo! for its assets. Rather, both Microsoft and Google want to keep Yahoo! from each other.

CNN Money says Yahoo is not a strategic fit for either Google or Microsoft. However, the company falling into each other’s hands will badly affect the other’s strategy.

Microsoft has currently extended the search deal with Yahoo to power searches with Bing. With this deal, Microsoft already has 30% of the U.S. search market, which is a big threat to Google. Meanwhile, Yahoo! falling into Google’s hands would be detrimental to Bing’s market share.

Neither company is reported to be considering an outright purchase, but they’re trying to finance private equity groups to increase their stake in Yahoo!

Yahoo! still gets good traffic worldwide, and the company’s R&D staff is said to be among the best, which means an acquisition will help bolster either Google’s or Microsoft’s capabilities and audience. But for now, acquiring Yahoo! is seen as a cheaper solution than losing the company to another rival.

Microsoft and Google are sitting on piles of cash, and lending it out for corporate deal making may be more lucrative than letting it sit around and collect essentially zero interest.

It will be hard to finance a Yahoo acquisition any other way. Private-equity firms are finding it tough to borrow huge sums of money they need to do multi-billion-dollar deals.

If they have a hand in the Yahoo takeover, Microsoft or Google may have a say in the future direction of Yahoo.

As of Sept. 30, Microsoft had $57.4 billion on its balance sheet, and Google was carrying $42.6 billion. Although the bulk of that money is overseas, cash in general is generating very little income in these days of historically low interest-rates, and companies have been searching for investments that will gain them some yield.

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