Sunday, November 30, 2008

Microsoft Reported to Buy Yahoo's Search Business for $20 B

According to the Timeonline in London, Microsoft is in talks to acquire Yahoo’s online search business for $20 billion.

Based on the article, the transaction that would see Microsoft support a new management team to take control of Yahoo. 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.

Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team, who 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% of Yahoo.

The external investors would 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 services.

It is expected that the operating agreement would boost Yahoo’s income by as much as $2 billion per year