Who's on first? The messy battle for Yahoo

Just in case you weren't confused enough about the current online media wars, the latest news from The Wall Street Journal is that Yahoo and Time Warner's AOL are closing in on a deal to combine their internet operations, a move "aimed at thwarting Microsoft's effort to acquire Yahoo," according to "people familiar with the matter."

Meanwhile, some more people familiar with the matter told the WSJ that Microsoft is, in turn, "recrafting" its own cunning ploy by talking with Rupert Murdoch's News Corp. about mounting a joint bid for Yahoo.

"Microsoft and News Corp. have yet to reach an agreement on joining forces but one person apprised of the plan described the discussions as serious," reports the paper. "Such a deal would combine three of the biggest internet properties: News Corp.'s MySpace, Microsoft's MSN and Yahoo." Phew.

All of this news, of course, "follows closely on the heels of Yahoo's first brilliant counter-move, which was to announce a test of a search partnership with Google," says Henry Blodget on Silicon Alley Insider.
Microsoft fired the first shot in the battle for Yahoo nine weeks ago with a cash-and-stock offer then valued at $US44.6 billion, or $31 a share, reports the WSJ. As of Wednesday, the deal is worth $US29.24 a share because Microsoft's share price has declined. Yahoo shares closed at $US27.77, up seven cents, or 0.25 per cent, in 4 pm trading on the Nasdaq Stock Market Wednesday.

Now, with its announcement of a two-week Adsense trial, "Yahoo is finally playing a very public hand with Google," says Rafat Ali on paidContent.org. It's also the surest indication yet of Yahoo CEO Jerry Yang's desperation to find an alternative to Microsoft, says Sam Gustin on Portfolio.com.

But the real drama, says Ali, "is behind scenes where Yahoo is still talking to Time Warner." According to sources, Time Warner is very serious now about a deal with Yahoo, he says. What with Google's relationship with AOL (5 per cent owner) and now this Yahoo test, "it could all come together pretty quickly, possibly even next week before the test is over."

If Yahoo can show that it gets a 30-40 per cent revenue lift, then "they have a story to tell," says Ali – that they could cut down costs by outsourcing search and search ads to Google and, adding to that a possible share buyback with Time Warner supplying the extra cash, get enough scale to stay independent.

Of course, this could all be shut down any minute should Microsoft increase its bid to $US34-35 a share. That could still happen, says Ali, "but Redmond's public response for now is regulatory roulette: it will never happen because Google would have too much of the market."

As for the News Corp.-Microsoft-Yahoo triumvirate, would this make sense? "Why not," says Blodget. "Owning MySpace standalone isn't doing Rupert any good – he's getting his clock cleaned by Facebook. MSN, of course, is dead in the water. But throw all that together with Yahoo and you could build a pretty honkinging global communications, social networking, and advertising platform."

And Rupert's got some cash, he adds, "which means the two might be able to pay more without infuriating their own shareholders."

Whatever happens, says Blodget, "at this point, you gotta believe Yahoo's stock is going up."

News Corp., AOL pursue Yahoo deals, Matthew Karnitschnig, Kevin J Delaney and Merissa Marr, The Wall Street Journal

Jerry Strikes Back, Part 2: Yahoo-AOL may announce merger next week, Henry Blodget, Silicon Valley Insider

Microsoft and News Corp May Make Joint-Bid For Yahoo, Henry Blodget, Silicon Valley Insider

Yahoo-AOL: Will It Happen Finally? In Advanced Talks on Combining, Rafat Ali, paidContent.org

Dangerous Liason, Sam Gustin, Portfolio.com