Google takeover of Yahoo

Google makes its boldest move yet in challenging rival Microsoft‘s. According to a report by the Wall Street Journal, Google may be looking into financing attempts by others to acquire Yahoo, its main search-engine rival.  With 65 percent to 70 percent search market share in the U.S., 75 percent share of search advertising, and 95 percent share of mobile search (according to numbers thrown out during the hearing), it is not too difficult to make the case that Google does wield monopoly power in search. However, being a monopoly in and of itself is not illegal. The government would have to prove that Google is abusing that monopoly power in an anticompetitive way in order to take action, and that is where things get tricky. Google already 65% share: Yahoo has about 15.5% of the sector in the US, with Microsoft‘s Bing (which powers Yahoo’s search) at 14.7%.

Internet giant, Google mulling part in Yahoo takeover scheme to edge out Microsoft. Google could afford to buy Yahoo, which has a market value presently of just over $20bn, but it unlikely to make a direct bid for it. There would be regulatory problems with the approach because if it were to take over Yahoo’s search business then it would have a stranglehold on that sector in the US beyond its already dominant.

The Internet giant has reportedly held talks with at least two-private equity firms about potentially assisting them to finance a deal to buy Yahoo Inc‚ core business.

Potential financing by Google for a bid for Yahoo has parallels with the $150m investment that Microsoft made in competitor Apple in 1997 to help preserve competition in the computer market.

But a Google bid would trigger regulatory interest. The US government threatened to challenge an earlier proposal by Google to place ads on Yahoo’s site, causing Google to abandon the effort in 2008. At the time Microsoft was making a $44.8bn bid for Yahoo which ultimately proved fruitless.

CEO Carol Bartz was fired in September, with Tim Morse filling in as Yahoo interim CEO while also working as chief financial officer. The shadow manoeuvring to bid for Yahoo, which fired Carol Bartz, its chief executive of just 18 months, in September is beginning to heat up as Microsoft and a number of private equity companies begin formulating their propositions for the struggling media company.

Any potential takeover bid would have to be hefty, the company is valued at around US $20 billion, according to the current market value of Yahoo.

The shadow manoeuvring to bid for Yahoo, which fired Carol Bartz, its chief executive of just 18 months, in September is beginning to heat up as Microsoft and a number of private equity companies begin formulating their propositions for the struggling media company.

Bloomberg News reported on Monday that Google’s chiefs are still trying to decide whether to aid on one of the bids being cooked up.

A Google-backed takeover would ensure that Microsoft could not get control of the media company, which has been struggling with falling advertising revenue and share as rivals such as Facebook capture both attention and advertising. That, in turn, would mean that the Bing search engine which is presently a significant lossmaker for Microsoft would be unable to move into profit in the medium term, and could be shut out of a significant position in the desktop search market. Microsoft is trying to build Bing’s share of the mobile search market through deals with Nokia and RIM, but with little impact so far.

Microsoft has recently been mentioned as a potential backer for a bid for Yahoo, in which it would provide a large chunk of the cash required for the bid, together with a number of other private equity companies. Yahoo’s management has instructed Goldman Sachs to investigate potential scenarios to enhance the company’s value – which could include a sale or going private.

The report from an unidentified source, comes as Yahoo tries to rebrand itself in a rapidly changing online environment.

The search-engine has struggled to adjust to the rapid establishment in the market of social networks such as Facebook and Twitter and has faced declining revenues at a time when Internet marketing is growing.

The government would have to prove that Google is abusing monopoly power

Any involvement by Google in a Yahoo acquisition would likely draw antitrust scrutiny from regulators, because of both companies‚ interests in the Internet search business.

Google is already under regulatory scrutiny from governments around the world. Greg Sterling, an analyst at Opus Research in San Francisco, told Bloomberg: “If competition dissipates or diminishes, then the hand of regulators is strengthened. If competition is diminished or marginalised, then all the arguments about Google being a monopoly ring more true.”

In June the US Federal Trade Commission began a review of Google’s business practices, including search and advertising. The European Union and the state of Texas also have begun investigations of the company’s leadership in search and advertising markets.

Google has not commented on the report, while Yahoo has said it does not comment on rumour or speculation.

Representatives of Yahoo and Google declined to comment.