The Wall Street Journal (sub req’d) is reporting that Microsoft is in talks (again) to acquire Yahoo!
In what appear to be early-stage discussions, executives at Microsoft and Yahoo are taking a fresh look at a merger of the two companies or some kind of match-up that would pair their companies’ respective strengths, say people familiar with the situation.
The renewed talks are a sign of the continued growth in Google’s power and problems over the past year with in-house efforts at Yahoo and Microsoft to ride a boom in Internet advertising. Meanwhile, management changes at both companies could help pave the way for a pairing that a year ago couldn’t happen. The talks were first reported in the New York Post.
I’m sure that the talks are indeed real and, as the WSJ story points out, there are some (SOME) synergies potentially here. Of course it remains to be seen whether anything results. Microsoft may also be talking to TimeWarner simultaneously about acquiring AOL, which would be somewhat less of an asset but also less expensive.
Microsoft needs to do something big and Yahoo! (read Terry Semel) needs to deliver more value to shareholders. This would do that in there near term. (Yahoo! shares are up on the rumor.) Yahoo! wants to remain independent but, if the terms are right it might do something like this. I’ve also argued that a strategic alliance is more likely than an outright acquisition.
While the market would cheer the estimated $50 billion acquisition (and to a lesser degree an alliance), in the former case I think there would be lots of challenges and issues integrating the two companies. The cultures are different, though not so different as Microsoft and Google, and there would be lots of turf wars around products and roles. And I think such a deal would ultimately send a bunch of Yahoo! employees out the door.
Again I believe the talks are real and it could happen but it would be very complicated to make work in some respects and it might not make any inroads against Google’s search market share, although it would provide either a formidable competitor or unified front against Google across the board in other areas.