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Yahoo may consider Google alliance

Yahoo Inc would consider a business alliance with Google Inc as one way to rebuff a US$44.6 billion takeover proposal by Microsoft, a source familiar with Yahoo's strategy said on Sunday.

Yahoo management is considering revisiting talks it held with Google several months ago on an alliance as an alternative to Microsoft's bid, which, at US$31 a share, Yahoo management believes undervalues the company, the source said.

A second source close to Yahoo said it had received a procession of preliminary contacts by media, technology, telephone and financial companies. But the source said they were unaware whether any alternative bid was in the offing.

Few natural bidders exist beside Google that could engage in a bidding war and Google would be unlikely to win approval from antitrust regulators, some Wall Street analysts said on Friday.

Yahoo's efforts to find an alternative bidder could simply be a measure to pressure Microsoft to boost its bid, which valued Yahoo at US$44.6 billion when first announced on Friday.

Yahoo chief executive Jerry Yang (楊致遠), who pledged last year to lead his team of "Yahoos" to victory, may find investors would rather team up with Microsoft Corp.

"It's hard to look shareholders in the eye and say it doesn't make sense," Robert Doll, chief investment officer of global equities at BlackRock Inc in Princeton, New Jersey, said of Microsoft's unsolicited offer. "There won't be a whole lot of options for Yahoo."

Sanford Bernstein analyst Jeffrey Lindsay wrote in a research note that "the Microsoft bid of US$31 is very astute" because it puts pressure on Yahoo management to take actions that could unlock the underlying value of Yahoo assets, which he estimates are worth upward of US$39 to US$45 a share.

Separately, Google Inc fired back on Sunday at Microsoft Corp's bid to acquire Yahoo Inc, accusing Microsoft of seeking to extend its computer software monopoly deeper into the Internet realm.

David Drummond, a Google senior vice president and its chief legal officer, said in a blog post that the combination of Microsoft and Yahoo could undermine competition on the Web and called on policy makers to challenge the combination.

Microsoft responded to Google's arguments by saying that a merger with Yahoo would create a "compelling No. 2 competitor for Internet search and online advertising" to market leader Google.

"The alternative scenarios only lead to less competition on the Internet," Microsoft general counsel Brad Smith said in a statement.

Drummond argued that Microsoft's power stems from decades-old monopolies in Windows -- the software operating system used to control most personal computers -- and Internet Explorer, which is the dominant browser consumers used to view the Web.

Microsoft's proposed merger with Yahoo would combine the No. 1 and No. 2 suppliers of Web-based e-mail, instant messaging (IM) and portals, which act as starting points for hundreds of millions of users seeking information on the Web.

The Google executive argued in an official blog post that Microsoft could be looking to favor Microsoft and Yahoo services by pushing customers to other Web services they own instead of letting customers elect to use rival services.

"Could a combination of the two take advantage of a PC software monopoly to unfairly limit the ability of consumers to freely access competitors' email, IM and Web-based services?" Drummond said in the blog. "Microsoft's hostile bid for Yahoo raises troubling questions. This is about more than simply a financial transaction, one company taking over another. It's about preserving the underlying principles of the Internet: openness and innovation."

In making its case for the deal during a conference call on Friday, Microsoft executives said Google -- not Microsoft -- was the one company antitrust regulators were likely to bar from buying Yahoo, based on Google's dominance in Web search.

Microsoft executives cited industry data showing Google has a 75 percent share of worldwide Web search revenue. Between them Yahoo and Microsoft attract approximately 20 percent of Web searches, Internet measurement firms data showed.

"Today, Google is the dominant search engine and advertising company on the Web," Smith said in replying to Google on Sunday. "Google has amassed about 75 percent of paid search revenues worldwide and its share continues to grow."

A person familiar with Google's thinking said the company believes Microsoft is using the same playbook it did in the 1990s to switch Windows users away from Web browser pioneer Netscape Communications to its own Internet Explorer.

"It is the same old story," the source said.
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