rumour-monger TechCrunch cranks out another hot one–Google is thinking of buying just under 20% of Yahoo just to block the Microsoft-Yahoo deal. rumour-squelcher Swisher howls in protest but offers no scoop to debunk it. So it’s time for us to weigh in.
We wish we found this “20% plan” absurd, but based on Google’s silly reaction to the Microsoft bid to date, we think Google might actually be considering it. And although Kara is right that merely pretending to want to buy Yahoo stock at a premium would incite shareholder lawsuits and outrage, we don’t see any reason why Google couldn’t actually buy 20% of Yahoo. (Eric writes check for $11 billion, Google still has $3 billion left).
What’s more, Google has used this play before, albeit on a far smaller scale. Remember when Microsoft and Yahoo were trying to negotiate a deal with AOL? Google flew in at the 11th hour and forked over the $1 billion-at-a-$20-billion valuation Time Warner wanted just to send Microsoft packing.
But here’s why we hope Google isn’t actually considering doing this:
- Google has plenty to worry about other than the Microsoft bid. Based on the recent Comscore data, Google has enough on its plate before it spends 80% of its cash mountain to block an acquisition.
- A Microsoft-Yahoo combination would be good for advertisers and publishers–and, in some ways, bad for Google. Thus, Google’s frantic efforts to stop the deal could trigger even more regulatory scrutiny. Google says it is worried about Microsoft-Yahoo because of Microsoft’s past monopolistic behaviour. This is a crock, but a Microsoft-Yahoo combination would, in fact, reduce Google’s ability to call all the shots in web advertising–because it would give advertisers a more credible alternative. This won’t kill Google–in fact, it will likely make it more disciplined and better–but it will likely lead to margin compression as Google responds by offering more service and/or lower prices. Google can’t be happy about that. But regulators won’t be happy about any Google-move perceived as an attempt to prevent it.
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