Microsoft-Yahoo $20 Billion Search Deal Hogwash – Levinsohn


The Times of London reports the details of an intricate pending Microsoft-Yahoo deal, in which Microsoft would buy Yahoo’s search business for $20 billion and install Jon Miller and Ross Levinsohn to run the company. The concept sounds reasonable (Microsoft buying Yahoo search), but the price sounds ridiculous (Yahoo’s whole market cap right now is about $15 billion). And a key player in the drama, Ross Levinsohn, says the whole thing is a crock.

First, the Times’ report:

SOFTWARE giant Microsoft is in talks to acquire Yahoo’s online search business for $20 billion (£13 billion).

The proposal forms the centrepiece of a complex transaction that would see Microsoft support a new management team to take control of Yahoo. But there is no intention of Microsoft tabling another takeover bid for the web giant, after its aborted $47.5 billion offer this summer.

It is thought that Jonathan Miller, ex-chairman and chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, have been lined up to lead the new management team. Senior directors at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed…

Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors.

This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo.

The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services.

It is expected that the operating agreement would boost Yahoo’s income by as much as $2 billion per annum.

And now Kara Swisher’s debunking:

A report in the Times of London in which Microsoft would buy Yahoo’s search business in a convoluted $20 billion deal that would include well-known Internet execs Jon Miller and Ross Levinsohn, is–in the words of one key player–”total fiction.”

Actually, that’s Levinsohn speaking, on the record. But that’s also the essential word from all key players regarding the Times’ report.

BoomTown has spoken to top sources at Yahoo (YHOO) and Microsoft (MSFT) too and all scoff at such a deal now taking place or that either side has been in any such discussions of late.

Who to believe? Let’s assume the truth is somewhere in the middle. Even if there are no actual talks taking place right this minute, there should be.

The $20 billion number is almost certainly fiction, given that, last summer, Microsoft offered to buy Yahoo’s search business for $1 billion. Microsoft also wants to own and run the search technology, so the idea of having a call option doesn’t really make sense.  Microsoft and Yahoo need to merge their search businesses, however, and both companies have said publicly they are happy to discuss a deal, so the idea that they’re working on something is perfectly plausible. (And if they aren’t now, soon.)

Ross Levinsohn and Jon Miller, meanwhile, would make fine additions to Yahoo’s senior team, and they are almost certainly being considered for those roles.

Lastly, unlike everyone else in the economy, Microsoft has cash coming out of its ears. So the idea of Microsoft using some of that cash to facilitate a Yahoo deal (which it also tried to do last summer). also makes sense.

Bottom line: If Yahoo and Microsoft aren’t discussing a search deal right now, they should be and soon will be. And Yahoo’s short list of candidates for CEO probably includes Jon.

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