That Microsoft-Yahoo Merger: It's Off

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UPDATED: The discussion about a reported merger between Microsoft and Yahoo today has ended. According to unnamed sources cited by the Wall Street Journal,
Microsoft broached the merger topic months ago and Yahoo quickly
rejected the deal. The deal remains dead.

A Yahoo spokeswoman told internetnews.com the
company refused to comment on “rumors or speculation.” Microsoft did
not respond to requests for comment.

Microsoft’s motivation to merge with Yahoo likely stems from a series of Google successes
— its launch of Web-based applications for small businesses, its outbidding of Microsoft for advertising firm DoubleClick and another quarter of spectacular financial results — has Microsoft hot for Yahoo’s Web presence once more.

Yahoo’s current market capitalization is $44.75 billion. In morning
trading, Yahoo’s share price rose five points, or 17 percent, to a near
52-week high of $33.23 per share.

Apparently, merger talks are just the cure for Yahoo after weak first-quarter financial results caused investors to bail on
the company in mid-April. The problem then was that Yahoo did not
exceed expectations for its new advertising platform, code-named Panama.

When reporting Yahoo’s 2006 financial results, CFO Susan Decker said Yahoo did not expect Panama to positively impact its profits until the second quarter of 2007. But early reports of the advertising platform’s success raised investor expectations. Despite positive reviews from Yahoo advertiser customers, however, those expectations were not met and the stock tanked. Until today’s merger talks.

Forrester Research analyst Charlene Li predicted that a merger would be pointless.

On her blog,
she wrote that while Microsoft needs the stronger Web presence Yahoo
offers to counter-balance the declining importance of its Windows
operating system, Yahoo would only benefit from Microsoft’s technical
expertise in Web services and APIs.

Beyond satisfying those needs, Li considered a potential merger a mess in
the making, especially considering the culture clash likely to ensue.

“Egos and innate disdain from being competitors over the past decade
would have to be set aside. Geographic distances (Seattle to
Sunnyvale, Calif.) would have to be bridged. And most importantly, a new
company ethos, leadership and culture, would have to be created. I’m
not hopeful that executive time spent on company politics will be
minimal,” Li writes.

And while Microsoft and Yahoo executives claw at each other, Li said
there’s nothing to suggest Google won’t continue to outpace the newly
formed entity as much as it does now.

If the merger won’t help Microsoft or Yahoo compete with Google, Li
concludes, what’s the point? She writes, “I believe that a merger
won’t be in the works anytime soon.”

This article was first published on InternetNews.com. To read the full article, click here.