Sun, May 06, 2007 - Page 1 News List

Rumors of Yahoo, Microsoft tie-up sweep Wall Street


US software giant Microsoft Corp and web portal Yahoo Inc were reported on Friday to be exploring a merger or alliance to better compete against Google Inc, but both remained tight-lipped about the rumors.

Yahoo's share price leaped approximately 18 percent and Microsoft's slipped slightly after the Wall Street Journal and the New York Post reported that the technology titans might unite to take on Internet search powerhouse Google.

The Journal backed off the report late on Friday, citing anonymous sources as saying that merger discussions took place in recent months but "are no longer active" but the two companies "may still explore other ways of cooperating."

The rumors are at odds with the mood at Yahoo, where morale and optimism have been buoyed in recent months with the successful launch of its new Panama online advertising platform.

Moreover, for Microsoft to acquire Yahoo or make a deal for it to handle the Windows Live online search business would be an out-of-character admission of failure by the world's largest software company.

When contacted, representatives from Yahoo and Google said they would not comment on speculation or rumors.


Analysts were skeptical of the notion of an acquisition, saying Yahoo was regaining its footing in the market after a rough patch and had little to gain by selling out to Microsoft.

"Count me among the skeptics; I don't think it's going to happen," said analyst Matt Rosoff of Directions on Microsoft, which tracks the firm.

"I don't understand what Yahoo would get out of the deal, and there are people there who don't want to work for Microsoft," he said.

Yahoo co-founder Jerry Yang (楊致遠) is reportedly among those averse to working for Microsoft, which technology entrepreneurs in California's famed Silicon Valley area notoriously regard as a menacing institutional empire.

While acquiring Yahoo would boost Microsoft's ability to compete in online services, integrating the firms' operations could present "thorny cultural and technological challenges," Datamonitor analyst Ri Pierce-Grove said.

Microsoft and Yahoo could easily be discussing some kind of partnership, perhaps in the area of Internet search or e-mail, where Yahoo has profited and Microsoft has suffered, Rosoff said.


"An outright acquisition would be very expensive," Rosoff said. "The future growth is not there; there are different cultures, and there is a ton of overlap, implying one would have to shut down what they have to offer."

At an informal gathering in San Francisco on Thursday, Yahoo executives spoke enthusiastically about the company's confidence in Panama and told of plans to roll out a host of new products and services.

Citing unnamed people it said were familiar with the situation, the Wall Street Journal said earlier on Friday executives at Microsoft and Yahoo appeared to be in early-stage discussions to take "a fresh look at a merger of the two companies or some kind of match-up that would pair their companies' respective strengths."

A year ago, the two had explored the idea of combining to form a greater competitor to search-engine giant Google, but the talks "led nowhere," the paper said.

Rosoff pointed out that the rumored talks between the companies a year ago had yet to be confirmed.

Combining the online search engines of Yahoo and Microsoft would give the companies about a quarter of a market ruled by Google.

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