Stock crash forces Yahoo and Google partnership
By TJ Kirchner
Yahoo stock fell a whopping 10% yesterday, forcing stockholders to stomach a $3.6 billion loss. Between the hours of 2:00 p.m. and 3:00 p.m., prices fell over $2.60. Fortunately, it managed to recover slightly by the end of today.
At the time of writing this, Yahoo is estimated to retain a price value of $23.52, according to CNBC. That’s still nothing compared to the $26.33 it enjoyed Wednesday.
According to TechCrunch, the drop in stock prices is in response to the failure of a proposed acquisition deal of Yahoo by Microsoft. In a recent press release, Yahoo had this to say:
Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today announced that discussions with Microsoft regarding a potential transaction — whether for an acquisition of all of Yahoo! or a partial acquisition — have concluded.
With respect to an acquisition of Yahoo!’s search business alone that Microsoft had proposed, Yahoo!’s Board of Directors has determined, after careful evaluation, that such a transaction would not be consistent with the company’s view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! stockholders.
Microsoft also said its good-byes:
In the weeks since Microsoft withdrew its offer to acquire Yahoo!, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo! shareholders. This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers.
However, Yahoo still hasn’t given up on the search engine business, nor on the possibility of being bought out by Microsoft. A potential partnership between Yahoo and the search engine titan Google is now on the table. This non-exclusive partnership would give Yahoo the ability to place its ads on Google. In addition, it has the ability to back out of the deal at any time by paying Google a $250 million termination fee, just in case Microsoft changes its mind. Yahoo even tried to entice Microsoft to an agreementby offering a $47.5 billion takeover deal.
Microsoft promptly refused the idea, but it tried to put together a counter-offer by asking for Yahoo’s search operations instead. However, the former search engine giant refused, believing that its search operations are too important to sell separately.
As I watch the deliberations of the three search engine leaders, I am reminded of the end of a game of Monopoly or Risk. There’s usually one player that’s vastly ahead of everyone else, with hotels on at least one side of the board, and all the other players have close to nothing (hotels on Baltic and Mediterranean at best). In a last ditch effort, the other players try to combine their property and money in hopes of chipping away at the leader.
In this case, Google is the winning player, with 75% of the search engine market, while Yahoo has an astounding 9%. It had its chance to combine forces with Microsoft, but Yahoo’s greed took over and it missed out. Now, they’re making deals with Google in hopes of staying in the game.
Unfortunately, I believe this is only delaying the inevitable. By combining forces with Google, Yahoo proves that its search engine and advertisement model works best; it may give Yahoo a boost in the beginning, but it’ll slowly kill the company as more stock holders and marketers make the change.
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