Microsoft opens Windows for Yahoo! but shuts gates with high bid

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New York, Feb 1: Microsoft Corp’s bid for Yahoo Inc may send media firms scrambling for Internet properties, but none will likely outbid the deep-pocketed software maker for Yahoo itself.

Time Warner Inc’s AOL, News Corp and Comcast Corp are among a handful of media companies that bankers, media executives and analysts say will ramp up technology investments or find partners as they face an interactive marketing world that may soon be defined by Microsoft/Yahoo and Google. The biggest software company in the world offered to buy one of the biggest Internet companies, Yahoo, on Friday for $44.6 billion, or $31 a share, to close the gap between it and Google Inc in the Internet search and display advertising sectors.

Few if any are seen topping Microsoft’s 62% premium on Yahoo. Eyes are on Yahoo’s next move and whether it would reject Microsoft’s bid in hopes of extracting a higher premium from the software maker. However, the market was betting against this possibility on Friday, with Yahoo’s shares trading below the offer price, at $28.31.

“From Microsoft’s point of view it makes all the sense in the world to do this and they’re voting with their pocket book when they put an offer in as high as they have,” said Murray Beach, president of technology-focused investment bank Boston Corporate Finance. “Yahoo’s board has to consider (it) and I think would be nuts to walk away from this offer,” Beach said. Few other natural bidders for Yahoo exist except Google, who analysts said would not likely pursue Yahoo because it would be unlikely to get antitrust nod.

Microsoft’s deal is also seen sparking other actions across media and the Internet landscape and marks a return to transformational deals, which dropped off after market turmoil last summer hit M&A volume.

“My guess is that Comcast, News Corp, maybe even GE, will convene board meetings sometime today to discuss their options,” RBC analyst Jordan Rohan said, admitting that it was unlikely any other party could come up with a better offer.

A News Corp source said the Rupert Murdoch-controlled company had no interest in bidding for Yahoo, despite having expressed interest last year in combining its MySpace with Yahoo. Those talks ended after Yahoo CEO Terry Semel resigned last June.

Still, big media firms such as News Corp will now likely boost technology investments. “I would expect Fox (Interactive Media) will do more and more acquisitions in technology so that they can play,” said Rishad Tobaccowala, CEO of Denuo, a consulting arm of Publicis.

He added, “Besides the big content companies that don’t have enough technology and who will have to go and buy technology, the companies people see as dumb pipes ... the cable and the telcos, will want to play too.” News Corp and Comcast declined comment.

Overnight, Microsoft’s bid, which values Yahoo at more than 60 times its forecast earnings for next year, boosted AOL’s value on Wall Street, one analyst said, making separation from owner Time Warner more financially palatable.

Applying Microsoft’s valuation of Yahoo to AOL’s advertising business, Bernstein Research analyst Michael Nathanson estimated the Yahoo-Microsoft news contributed $1 per share to Time Warner’s $23 per share value in his sum-of-the-parts estimate.