By Frank Ahrens and Peter Whoriskey
Washington Post Staff Writers
Friday, April 11, 2008
Media mogul Rupert Murdoch is working both sides of the fence in an effort to acquire Yahoo -- negotiating directly with the Internet portal while also attempting to join Microsoft's two-month-old bid for the company, according to sources close to the deal.
The result may be a higher price for whoever ends up with Yahoo.
A source close to the talks confirmed conversations between Yahoo and Murdoch's News Corp. yesterday. The source spoke on the condition of anonymity because the talks are private.
At the same time, Murdoch is working with Microsoft on a combined bid for Yahoo, in which he likely would contribute cash, his MySpace social networking empire and his Fox Interactive Media division.
Yahoo is also in discussions with Time Warner on a deal that would send AOL to Yahoo in return for an ownership stake in the combined entity, according to sources close to the talks. Yahoo's board is scheduled to meet today to discuss the company's options, the sources said.
All of this is happening as Yahoo tries to bolster its position against Microsoft by striking an experimental deal with Google, in which the search giant would serve ads to Yahoo users.
Despite Murdoch's two-fisted dealmaking, the smart money is still on Microsoft gaining sole ownership of Yahoo, said Eric Jackson, president of Ironfire Capital.
"Yahoo is really doing everything it can to at the very least encourage a higher offer," said Jackson, who also leads a group of investors holding 2.1 million Yahoo shares, which is less than 1 percent of the company. "I give Yahoo credit for scratching together this test deal with Google and credit for getting the rumors leaked about AOL, but at the end of the day neither of these options is going to trump the existing offer from Microsoft."
Yahoo's try-everything strategy may still pay off, even if the company ends up in Microsoft's hands. The moves likely enhanced the company's bargaining position as it tries to fend off or raise Microsoft's $44.6 billion takeover bid.
This week, Piper Jaffray analysts wrote that in their sample of 20 Yahoo institutional investors, the majority suggest they "prefer the current deal [with Microsoft] to no deal."
Yesterday, those analysts wrote that because of Yahoo's possible arrangements with Google and News Corp., "Yahoo has now seemingly assumed a far more powerful position in the negotiations. Considering the many new developments, it is difficult to predict an ultimate outcome to this ongoing saga; however, we do believe that now there is a distinct possibility Microsoft could raise its bid for Yahoo."
Yahoo has rejected Microsoft's bid, calling it too low, and is now working against a ticking clock: In an April 5 letter to Yahoo's board, Microsoft chief executive Steven A. Ballmer gave the company three weeks to accept the bid or Microsoft would wage a proxy battle, taking its offer directly to shareholders.
Microsoft's bid valued Yahoo stock at $31 per share. Yahoo closed up 82 cents yesterday, to $28.59. Shares of Microsoft closed up 22 cents, to $29.11, and News Corp. closed down 9 cents, at $19.44.
News Corp. and Yahoo declined to comment yesterday.
Murdoch would like to combine the vast user base of MySpace with the popularity of Yahoo as a way of potentially wringing substantial income out of MySpace.
Microsoft, meanwhile, would like Yahoo to partner with its MSN to eat into the search and search-based advertising dominance of Google.
Jackson said he and other Yahoo shareholders remain eager for Yahoo to make a deal with Microsoft.
"I think there is some frustration that this has dragged on as long as it has," he said. "People are getting to the point where they just want to see this done."