Although Microsoft and Yahoo have been talking off and on for the past few years, it was only early this year that Microsoft made a formal $44.6 billion bid for Yahoo. The offer appears generous as it was at about a 62% premium to Yahoo's prevailing share price.It was however turned down by Yahoo.
Reaction from arch rival Google was immediate.It said that the deal raised troubling questions......about preserving the underlying principles of the Internet: openness and innovation.Rumors are circulating that Schmidt, Google's CEO has offered his help to Jerry Yang of Yahoo to ward off Microsoft. Google currently commands 75% of search-ad revenues worldwide. It carried out almost 65% of all the Internet searches done in the US this year. Even if Yahoo and Microsoft were to combine their corresponding figure for searches would only be 28%. Microsoft is eager to seal a deal with troubled Yahoo to avoid being left out of the lucrative online ad business. It is not concerned about the possibility of Google making a counter offer as it would almost certainly be prevented by regulators, given Google's dominance in the area.
Around the middle of this month, Yahoo on its part, made a forecast that its revenues-minus advertising commissions-will climb more than 70% in the next 3 years to reach $8.8 billion in 2010. Analysts interpreted this disclosure as a sign that Yahoo was unable to find an alternative deal to Microsoft's offer and that it may be willing to negotiate with Microsoft. In fact a meeting between the top executives of the two companies has been held in Silicon valley, prompting analysts to remark that the deal appeared to be turning 'friendly.'
The latest assessment comes from Citigroup which says that Microsoft is likely to raise its $31 per share offer for Yahoo. Although other possibilities were being discussed it considers a Microsoft-Yahoo deal to be the most likely outcome.