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Microsoft-Yahoo: The Future of the Online Advertisement Market?

By IBLS Editor

Yahoo's rejection to Microsoft"s offer is officially expected later today, Monday, February 11, 2008.  Two weeks ago, Microsoft posted an unsolicited offer to purchase Yahoo for US$44.6 billion (about $31 per share); an offer many consider an attempt by Microsoft to compete with Google in the online advertisement market.  Last Saturday, February 9, the Wall Street Journal reported that after Friday's meeting, Yahoo's board of directors deemed that Microsoft's offer per share "massively undervalues the web pioneer's true worth."  Unofficial sources said Yahoo might consider an offer above $40 per share even though Yahoo's shares have not traded for $40 in the past two years.  Indeed, Yahoo's shares have steadily fallen during the past two years.  

An unofficial source informed the Wall Street Journal that Yahoo cannot consider Microsoft's low offer, which is equivalent to 62% of Yahoo's value as to January 31st, 2008, because the offered price does not reflect the risks Yahoo would be taking if it enters into this agreement.  Yahoo board of directors acknowledges a Microsoft-Yahoo deal may trigger antitrust regulations.  In fact, Google's Chief Legal Officer David Drummond has already announced that Google will lobby antitrust regulators against the Microsoft-Yahoo deal.    "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?' "Policymakers around the world need to ask these questions - and consumers deserve satisfying answers,' Drummond said.  

Thus, even though an official response to Microsoft offer is expected later today, experts predict this would not be the final answer to this deal.  Microsoft has time to raise its offer before the next meeting of Yahoo's board of directors.  In fact, since Yahoo has no internal regulatory protection for its board of directors, Microsoft may attempt to overthrow Yahoo's current board to pursue its goal.   Additionally, analysts said, Microsoft may present a tender offer.  This mean, Microsoft may directly present its offer to Yahoo's shareholders; an action intended to press on the board for a final acceptance. 

The online advertising market is what is at stage. Experts consider the online advertising is going to be the most prominent market in the near future.  Currently, this market is dominated by Google; and Yahoo, despite its fallout during the past years, is still one of the biggest online marketing players.  After the Microsoft offer, Google offered protection for Yahoo.  Indeed, Google seems willing to work 'some deal' with Yahoo.  Yet, a Google-Yahoo deal presents even greater antitrust concerns.  A Microsoft-Yahoo deal implies a strong dominance of the advertising market. Microsoft software and Yahoo search engine combined will collect the data needed for assertive online advertising.   This consortium will be the resource for companies and advertisers and its dominance may definitely affect Google. Though, Google's already supremacy and acquisition of other online companies is still undefeatable.  

Full post as published by IBLS Internet Law Blog on February 11, 2008 (boomark / email).