James Perrin

A Guide to Yahoo’s Potential Buyers

24th Oct 2011 News, Industry News 4 minutes to read

The murmurings surrounding the sale of Yahoo are growing. It seems each week we’re talking about another Internet company as a potential buyer of the former search giant, but just who, if anyone, is going to buy the struggling Internet Corporation?

Despite Jerry Yang saying the company was not up for sale at the start of the month, it has been mooted that they are now looking at potential buyers. Some bidders sit as outstanding candidates, others are more speculative, so here is a guide to the names and players who are being touted as potential suitors.

Chances: Quite likely

Ever since the sacking of Yahoo’s CEO Carol Bartz, Alibaba have stood out as one of the most likely candidates to take over Yahoo. Most recently, Alibaba’s group chairman Jack Ma was reported as saying he was “very interested” in buying Yahoo. Talking at a China 2.0 conference at Stanford University, he gave clear indication of their intentions with Yahoo, who currently own around 40% of Alibaba [See: Is the End Nigh for Yahoo?]

The relationship between the two companies has been complicated and acrimonious at times, especially when the former shifted the ownership of their payment system, Alipay, to an entirely owned Chinese company. Yahoo and their shareholders were desperately seeking some form of compensation, which partly contributed to the sacking of Bartz [See: Yahoo Cagey Over Alibaba Affair].

Therefore, whilst Alibaba have previous with Yahoo, and standout as likely candidates, their problematic relationship may be a stumbling block. Ma has not spoken since about their bid, so it’s unclear if they will make a serious bid.

Chances: Most logical

Last week there were rumours circulating that AOL were preparing a bid for Yahoo themselves. People close to the matter believe that AOL and many private equity firms were going to table a bid as reported in the Wall Street Journal.

Despite being a much smaller sized company to Yahoo, they boast a modest $2.68 billion market value in comparison to Yahoo’s $20.56 billion. This has raised doubts over whether or not AOL could actually afford to make a takeover, and so there has also been talk about Yahoo taking over AOL instead.

A combined venture with Yahoo and AOL would make a great deal of sense, as they could compete on a greater scale with Google and help drive up advertising revenues. Ultimately it is advertising that these two companies have struggled with, especially as Google totally dominate the market. Two ailing powerhouses from the 1990’s dotcom era could do with a little revitalisation and a joint venture could be the answer, and so it is currently one of the most logical potential deals.

Chances: It would make sense

Next up we have Microsoft who doesn’t necessarily want to buy out Yahoo and run it themselves, they would rather help finance a deal to keep the company running as a separate business, but one that they would own. It’s believed that Microsoft have already started negotiations with private equity firms, who they would lend the money to for the buyout.

Whilst Yahoo have struggled recently, they still boast 700 million unique visitors a month, and their news sites generated 81.2 million unique visitors in August, making it the largest online news site. This makes any potential buyout all the more appealing, especially as Microsoft could then start to compete strongly with Google in terms of advertising revenues.

The reason a deal with Microsoft would make sense is because of their current relationship, mainly regarding their search engine Bing. Microsoft’s search engine powers Yahoo’s search results and generates modest advertising revenues for them [See: Yahoo to Finally Integrate Bing Search in Europe].

Chances: It will be tough

Another big player, the biggest player of them all in fact is Google. Just like Microsoft, their buyout specifically relates to providing the funds for other companies or investors to buy out the company themselves. It’s believed this deal is in part due to Google’s concern, or desire rather, to edge out Microsoft.

The main reason that Google wouldn’t necessarily buy out Yahoo in a straight deal is mainly because of their overwhelming stranglehold on the sector. In terms of search engine market share Google currently take up approximately 65% of the market in the US and 90% of the market in the UK [See: Search Engine Market Share Statistics – October 2011].

Therefore with regulatory problems and issues of their monopolisation, Google would have to tread very carefully, especially as they are under anti-trust and regulatory scrutiny around the world [See: How Many is Too Many Antitrust Complaints for Google?] Google can certainly afford a takeover, but it will be tough to get around the regulatory issues. It doesn’t make a great deal of sense for them to own Yahoo either, however if it means preventing Microsoft from getting their hands on Yahoo, then they probably don’t care.

Don’t Sell Out
Chances: A puncher’s chance

Whilst Yahoo is believed to be looking at potential buyers, it doesn’t necessarily mean that this is their only option. The way in which Microsoft and Google are looking at the buyout is very interesting, and does raise the question that if these private equity firms get funds elsewhere, they could table a bid themselves.

Yahoo could always choose this option and still keep themselves running separately, however the potential to join forces with one of their competitors and grow revenues may be too appealing, especially with disgruntled shareholders and executives.

So there’s our round up of the purported options available to Yahoo, whilst there may even be many others that we haven’t even discussed. But what do you think the outcome will be? Will they choose any of the above or do you think they have something else up their sleeve? Feel free to leave your thoughts below.

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