Yahoo Rejects Microsoft, Looks to Google?

Yahoo is expected to reject Microsoft's $44.6 billion takeover bid today, believing the offer seriously undervalues the company. But analysts believe Microsoft will not give up easily, and may increase the $31-per-share offer that it proposed earlier.

Other strategies include a direct offer to shareholders, or an attempt to overthrow Yahoo's board of directors. In the increasing war for online advertising, Microsoft is looking to purchase Yahoo to gain a competitive advantage against dominant ad provider, Google. (Source: nytimes.com)

For its part Yahoo seems willing to stave off Microsoft's advances as it searches for alternatives. CEO Jerry Yang has reportedly brought on investment firms Goldman, Sachs & Co. and Lehman Bros. to consider a variety of alternatives, including a pact with rival Internet firm, Google. (Source: bloomberg.com)

This seems the most likely outcome for an independent Yahoo. In this scenario, Google would place ads on Yahoo's sites and the two companies would share in the profit. This idea is nothing new, and critics have called for this business model before. The plan would seriously reduce Yahoo's operating costs, and allow the company to remain autonomous.

However, despite the apparent advantages some analysts are advising against such a deal, because it could leave Google open to anti-trust investigations. Two major search providers joining forces would seriously reduce competition for online ads, and Google has already been gobbling up other advertising platforms (such as recent acquisition DoubleClick).

Yahoo may also consider selling off its ownership in companies (such as Yahoo Japan) and others worth an estimated $14 billion, or even selling off divisions within Yahoo itself. But both of these options are not favored by the company's executives, and are most likely the last resort.

Whatever the counter-strategy might be, with Microsoft's interest hanging over company discussions, Yahoo may have a difficult time convincing shareholders to stay away from the Redmond giant.