NEW YORK Yahoo! might not be the most desirable bride, but that hasn’t stopped Microsoft, News Corp. and Time Warner from trying to lead it to the altar.
The three media giants are attempting to get a head start on what could become a Web consolidation frenzy, or at least to avoid winding up the odd player out. To whom will Yahoo! say “I do”?
Most on Wall Street are still betting on Microsoft, the first suitor to tip its intentions. Rupert Murdoch’s News Corp. would bring its online assets, including social networking juggernaut MySpace, to the union. Should those scenarios fail to play out, Time Warner’s AOL could step in.
Citi Investment Research analyst Jason Bazinet suggested that “News Corp. has better prospects than Time Warner,” because it brings a missing piece that Yahoo! could capitalize upon — a robust social network.
“Moreover, News Corp. interests [are] more aligned with Yahoo!’s shareholders who seem to prefer cash and stock to pro-forma projections” in the AOL-Yahoo! deal scenario, Bazinet said.
None of the principals are talking, but News Corp. also is reportedly considering joining Microsoft in a bid for Yahoo!. Wall Street is skeptical of such an arrangement however, suggesting that it would only be a matter of time until one of the three felt it was being given short shrift.
Miller Tabak analyst David Joyce points out that the three-way alliance would be a “less tangible alternative and more complex to effect.”
Yahoo! and TW are discussing combining AOL with Yahoo! and having TW make a cash investment in return for about 20 percent of the combined entity. Yahoo! would use the TW cash and additional funds to buy back several billion dollars worth of its own stock.
Whomever — if anyone — winds up aligned with Yahoo! will stay in the shadow of search engine behemoth Google, which remains in an online league of its own.
The overtures by Microsoft, News Corp. and AOL are in part driven by the unmatched performance of this true belle of the ball, analysts said. Other companies remain second-tier online players for now.
“We suspect both Time Warner and News Corp. want to avoid tertiary status on the Web as consolidation accelerates,” Bazinet said.
Jefferies & Co. analyst Youssef Squali argues that Yahoo! is mainly using the two big entertainment industry suitors to ultimately get a bigger ring from Microsoft.
“While we view agreements with both AOL and Google as “hairy,” we believe they eventually force a Microsoft bid raise,” he said. “Bottom line, we believe that a ‘clean’ acquisition of Yahoo! by Microsoft is still the most likely scenario.”
Forrester Research analyst Shar VanBoskirk thinks that this would be a favorable outcome, but sees the latest moves by Yahoo! as the firm doing “whatever it can” to stay away from Microsoft.
VanBoskirk doesn’t see a Yahoo!-AOL alliance as being particularly fruitful. While they would give each a bigger footprint in the online arena, their overall capabilities are so similar that a deal wouldn’t provide either with a new competitive advantage, she said.
VanBoskirk also sees a Microsoft-Yahoo! combination as the best one for Yahoo! and for advertisers. “The overall advantage is that both of those portals have a heap of customer data,” VanBoskirk said. “When put together it would be a nice thing for advertisers to leverage.”
Many warn that Yahoo! could overestimate its desirability and end up turning off suitors by flirting with too many prospective partners.
“Under the risky scenario where Yahoo! remains independent, we believe that the stock could drop precipitously back to the high-teens/low-20s short term,” Squali said.