And The Saga Continues .....

It is amazing how fast things develop when it gets personal. The latest news from the WSJ reports that Yahoo! and Time Warner's AOL (which they may like to give away cheap, just to get it off the books and out of their memories) are close to a deal to combine Internet operations. Of course, Microsoft is developing its own battle plan, hooking up with News Corporation in an effort to possibly mount a joint bid for Yahoo! and its new partners - Google, AOL, .... and everyone else who hates MSFT. An interesting statement in the article is that "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." Now why would the WSJ have the inside track on a possible MSFT / News Corp deal? Hmmmm.

Of interest is how AOL (aka Time Warner) would purchase shares of Yahoo! at a price above the Microsoft offering price. Essentially, AOL and some cash would come Yahoo!'s way. The deal would not include AOL's dial-up access business , and would value AOL at $10 billion (do they still have a viable dial-up business, and does anyone except the AOL dial-up or broadband folks go to the site?). Yahoo! would use the cash to buy back stock in the $30 to $40 range.

The question that gets lost in all this is whether all these partnerships are actually good for Yahoo! shareholders, or even Microsoft for that matter? Will the combined partnerships be worth more than $31 a share? Some analysts are already skeptical. Looking at the new proposed partnerships, Yahoo! seems to be getting the short end of the stick. AOL brings less to the table, other than a declining business, albeit a still significant number of eyeballs (still 4th overall with 109 million visits in February - although every time someone logs on the Internet - with either their AOL dial-up or broadband - they hit the site, even if they don't intend to, or plan to stay around). News Corp, on the other hand, brings an increasing social network to the plate with MySpace and their growing media presence.

At first blush it looks like Yahoo! is strategically placing itself in a position to command a higher bid, while Microsoft is setting up an alliance that will allow it to offer a higher bid. With a new partnership with AOL, Microsoft can rationalize a higher bid, and still save face (at least a little). In the end, everyone may realize that the $31 per share was a good price, and certainly less complicated for valuing the deal.

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