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Google Offers to Help Yahoo Fight Off Microsoft

Date: 2/4/2008 5:02:42 PM

Standing between a marriage of Microsoft and Yahoo may be the technology behemoth that has continually outsmarted them: Google.

In an unusually aggressive effort to prevent Microsoft from moving forward with its $44.6 billion hostile bid for Yahoo, Google emerged over the weekend with plans to play the role of spoiler.

Publicly, Google came out against the deal, contending in a statement that the pairing, proposed by Microsoft on Friday in the form of a hostile offer, would pose threats to competition that need to be examined by policy makers around the world.

Privately, Google, seeing the potential deal as a direct attack, went much further. Its chief executive, Eric E. Schmidt, placed a call to Yahoo’s chief, Jerry Yang, offering the company’s help in fending off Microsoft, possibly in the form of a partnership between the companies, people briefed on the call said.

Google’s lobbyists in Washington have also begun plotting how it might present a case against the transaction to lawmakers, people briefed on the company’s plans said. Google could benefit by simply prolonging a regulatory review until after the next president takes office.

In addition, several Google executives made “backchannel” calls over the weekend to allies at companies like Time Warner, which owns AOL, to inquire whether they planned to pursue a rival offer and how they could assist, these people said. Google owns 5 percent of AOL.

Despite Google’s efforts and the work of Yahoo’s own bankers over the weekend to garner interest in a bid to rival Microsoft’s, one did not seem likely, at least at this early stage.

For example, a spokesman for the News Corporation said Sunday night that it was not preparing a bid, and other frequently named prospective suitors like Time Warner, AT&T and Comcast have not begun work on offers, people close to them said. They suggested that they did not want to enter a bidding war with Microsoft, which could easily top their offers.

A spokesman for Time Warner declined to comment, as did a spokesman for Comcast. A representative for AT&T could not be reached.

In the meantime, people close to Yahoo said that the company received a flurry of inquires over the weekend from potential suitors. Some people inside Yahoo have even speculated about the prospect of breaking up the company. That could mean selling or outsourcing its searchrelated business to Google and spinning off or selling its operations that produce original content, these people said.

“Everyone is considering all kinds of options and a deal on search is one of them,” a person familiar with the situation said.

One person involved in Yahoo’s deliberations suggested that “the sum of the parts are worth more than the whole,” arguing that its various pieces like Yahoo Finance, for example, could be sold to a company like the News Corporation for a huge premium while Yahoo Sports could be sold to a company like ESPN, a unit of the Walt Disney Company.

Executives at rival companies were less optimistic about such a breakup strategy. “No one can get to a $44 billion price,” one executive at a major media company said, “even if you split it into a dozen pieces.”

In making its bid for Yahoo, Microsoft is betting that past antitrust rulings against it for abusing its monopoly power in personal computer software will not restrain its hand in an Internet deal.

In the United States, a federal district court in Washington ruled in 2001 that Microsoft had repeatedly violated the law by stifling the threat to its monopoly position posed by Netscape, which popularized the Web browser. The suit, brought during the Clinton administration, was settled by the Bush administration. But as a result of a consent decree extending through 2009, a federal court and a threemember team of technical experts monitors Microsoft’s behavior.

In 2006, for example, after Google complained to the Justice Department and the European Commission that Microsoft was making its MSN search engine the default in the most recent version of its Web browser, Microsoft modified the software so that consumers could easily change to Google or Yahoo.

In Google’s statement on Sunday, it said that the potential purchase of Yahoo by Microsoft could pose threats to competition that needed to be examined by policy makers.

Google’s broadly worded concerns lacked detailed claims about any anticompetitive effects of the deal, and the company did not publicly ask regulators to take specific actions at this time.

“Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?” asked David Drummond, Google’s senior vice president and chief legal officer, writing on the company’s blog.

Yahoo and Microsoft declined to comment Sunday on Google’s actions. Earlier on Sunday, Microsoft’s general counsel, Bradford L. Smith, said in a statement: “The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search and online advertising.”

Google’s effort to derail or delay the deal on antitrust grounds mirrors Microsoft’s own actions with respect to Google’s bid for the online advertising specialist DoubleClick for $3.1 billion, announced in April.

The strategy is not surprising, considering that any delays would work to Google’s benefit. “Google can tap into all of the ill will that Microsoft has created in the last couple of decades on the antitrust front,” said Eric Goldman, director the HighTech Law Institute at the Santa Clara University School of Law.

The outcome of any antitrust inquiry will hinge, in part, on how regulators define various markets. MicrosoftYahoo, for instance, would have a large share of the Webbased email market, but a smaller share of the overall email market.

“The potential concern would be that Microsoft, if it acquires Yahoo, could do on the Internet what it did in the personal computer world — make technical standards more Microsoftcentric and steer consumers to its products,” said Stephen D. Houck, a lawyer representing the states involved in the consent decree against Microsoft.

Yahoo has not made a public statement about the proposed deal since Friday, when it said it was weighing Microsoft’s offer as well as alternatives and would “pursue the best course of action to maximize longterm value for shareholders.”

Carl W. Tobias, a law professor at the University of Richmond in Virginia, said an antitrust review of the MicrosoftYahoo deal could take a long time and “may well bleed into a new administration with an entire new view on antitrust than the Bush administration.”

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Source: http://www.nytimes.com/2008/02/04/technology/04yahoo.html?_r=1&ref=business&oref=slogin


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