Microsoft may buy Yahoo search biz for $20 bn

‘But there is no intention of Microsoft tabling another takeover bid’.

Software major Microsoft is in discussions to buy the online search business of Yahoo for about $20 billion, media report says. A few months back, Yahoo had spurned a takeover bid from Microsoft worth more than $47 billion.

"Software giant Microsoft is in talks to acquire Yahoo's online search business for $20 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,"

The Sunday Times has reported. According to the report, 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," the publication said in a report published online on Sunday.

The Sunday Times said that under the terms of the proposed transaction, Microsoft would provide a $5billion 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 per cent of Yahoo, the report noted. “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 service,” The Sunday Times reported.

The report added that it is expected that the operating agreement would boost Yahoo's income by as much as $2 billion per annum. Interestingly, the Microsoft buyout offer had valued Yahoo shares at $33 per piece and ever since the scrip has plunged to below nine dollars.

The takeover bid was mainly opposed by Yahoo's chief executive Jerry Yang, who earlier this month announced his decision to step down from the post but would remain a part of the company. Further, Yang, who is also the co-founder, had been pinning hopes on an advertising deal with Google but the deal fell through mainly due to regulatory concerns.

Even though Microsoft and Yahoo remain profitable, both companies are way behind Google on the web. “Over half the $40-billion plus online-advertising market comes from internet-search ads, and analysts estimate Google has about 77 per cent of spending compared with Yahoo's 18 per cent and Microsoft's five per cent,” the report said.