Today, despite earlier eleventh-hour attempts to adjust the deal to make it work, Google walked away from its proposed search ad partnership deal with Yahoo.

(more…)

Several news sites reported today that the long-in-the-making search advertising partnership between Yahoo and Google — which we’ve been following with interest here at the Aplus.net Blog because of the implications it has for the entire world of online commerce — was changed dramatically when the companies agreed to “scale back” the scope of the merger in order to improve their chances of federal approval.

(more…)

Writing for Reuters international news agency today, Franklin Paul reports that, despite numerous rebukes over the course of this past year, Microsoft is still interested in partnering with Yahoo in some capacity.

Just how far-fetched is this idea? Well, Yahoo’s shares jumped as much as 17 percent when investors heard of Microsoft’s comments — which could very well lead to a return to the negotiating table, especially in these rocky economic times, when standards may be a bit lower than usual. According to the story, Yahoo’s gains later amounted to “about 12 percent” after Microsoft released an official statement indicating that it was not specifically interested in buying Yahoo.

Still, 12 percent is a healthy bump, especially given Yahoo’s poor performance as of late. From the article:

Since talks broke off (in July), Yahoo shares have plunged to a 5-1/2-year low of $11.37, weighed by concerns over the outlook for Web display advertising, as major advertisers such as banks and automakers cut back spending.

“We offered 33 bucks not too long ago and it’s 11 and a half. So I don’t know what price might have got the job done,” [Microsoft CEO Steve] Ballmer said, responding to a question from Gartner analyst David Smith on whether Microsoft might take another stab at buying Yahoo now that its stock price is so low.

“It’s clear that Yahoo did not want to sell the company. It did not want to sell when we offered 33 … They probably think it’s worth at least 33 today.”

Yahoo declined comment. Its shares rose to as high as $13.73 on Thursday, before settling at around $13.16 in late trading on the Nasdaq.

“Our position hasn’t changed. Microsoft has no interest in acquiring Yahoo; there are no discussions between the companies,” a spokesman for Microsoft said in a statement.

Microsoft shares were up 3.6 percent at $23.48.

Despite the market’s excitement, any pursuit of new talks would be impeded by several issues, including Yahoo’s severely depressed stock price and the poor outlook for the advertising market due to the weak economy, analysts said.

“The larger issue is strategic fit,” Cross Research analyst Richard Williams said. “Microsoft clearly has spent money and changed its focus to ‘build’ rather than ‘buy.’

He added that for businesses driven by advertising, such as Microsoft and Yahoo’s Internet operations, it is the wrong time for a deal with markets reeling and consumer confidence plummeting.

“Going into a recession is about the worst time to buy an advertising firm,” Williams said. “It’s hard to know how hard they are going to be hit and how low they are going to go.”

Read the original story here.

The Washington Post’s Post IT tech blog tells us that the highly anticipated (and a little dreaded, in some quarters) merger between Google and Yahoo — called “Goohoo” by some — has been delayed to allow time for the U.S. Justice Department to further review the deal.

The announcement delays slightly (less than a month, according to the article) a huge deal that has far-reaching implications to the world of online business. These two companies have been negotiating a deal for months now, and have even tested programs together.

Combined, Google and Yahoo would comprise an enormous majority of the online advertising marketshare. Google’s software, which places text ads in conjunction with results on its hugely trafficked search engine, succeeds more than does Yahoo’s. It’s believed that Yahoo wants to use that software to boost its own earnings and avoid another acquisition threat, such as that attempted by Microsoft earlier this year.

Federal overseers have been taking their time approving the deal, amidst very real concerns about monopoly. Hence, the slight delay announced last week isn’t a huge surprise.

From the Post IT article:

When the cooperative agreement was announced on June 12, Google and Yahoo said they would give the U.S. Department of Justice about three and a a half months to review the deal. That time period has lapsed, however, and after meetings with Justice Department officials today, Google and Yahoo lawyers have agreed to delay its implementation.

Under the agreement, Google will provide advertising to run alongside some queries conducted on Yahoo’s search engine.

Google and Yahoo said consumers will benefit because Google has a better way of matching relevant advertising to search queries. But critics said the deal would allow the two companies, who rank number one and number two in the booming search advertising industry, to operate as a monopoly.

What do you think? Would this semi-merger create more opportunities for online ad revenue, or less? Would it be best if the two companies remained competitors, or would you prefer that they merged ever further for the sake of convenience?

Read “Goohoo Delayed To Allow Justice Department More Time To Review” by Peter Whoriskey here.

We are now entering the next stage of interesting events in the ongoing Microsoft/Yahoo! saga.

Steve Ballmer has formally withdrawn the offer to acquire Yahoo! in a letter to Yahoo!’s C.E.O. Jerry Yang. The letter was so interesting that I felt it was necessary to include it for you.

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding a possible combination of Microsoft and Yahoo!.

I first want to convey my personal thanks to you, your management team, and Yahoo!’s Board of Directors for your consideration of our proposal. I appreciate the time and attention all of you have given to this matter, and I especially appreciate the time that you have invested personally. I feel that our discussions this week have been particularly useful, providing me for the first time with real clarity on what is and is not possible.

I am disappointed that Yahoo! has not moved towards accepting our offer. I first called you with our offer on January 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions.

In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer.

Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

•First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them. This would undermine the reliance on your display advertising business to fuel future growth.
•Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.
•In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.
•This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

•It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We will move forward and will continue to innovate and grow our business at Microsoft with the talented team we have in place and potentially through strategic transactions with other business partners.

I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer
Chief Executive Officer
Microsoft Corporation

(source: http://www.microsoft.com/presspass/press/2008/may08/05-03letter.mspx)

No one really knows where this will go from here, but I am sure there are many people interested to see how this will affect YHOO stock on Monday morning. I would love to hear comments on this topic, so please feel free to speak your mind.

Kind Regards,

Dennis Kittrell