Yahoo, Microsoft Merger Could Aid Telcos
Even at the initial rejected bid of $44.6 billion, a potential Microsoft Corp. (Nasdaq: MSFT) and Yahoo Inc. (Nasdaq: YHOO) merger could be the biggest M&A deal of the year. (See Microsoft Makes $44.6B Hostile Bid for Yahoo.) Progress on bringing the two together however, has stalled.
So what's happening next? Yahoo has formally rejected Microsoft's bid, but it is widely accepted that Microsoft will raise its offer. Recent reports also suggest that it will begin a formal proxy to oust members of the Yahoo board and insert its own people who will vote favorably on the merger. (See Proxy Time.)
Then, of course, there's Google (Nasdaq: GOOG), which has publicly denounced the merger and has instead proposed an alliance between the two search engine giants. News Corp. (NYSE: NWS) has also talked to Yahoo about a deal of its own. (See Yahoo Calls on News Corp.)
While no one can say for sure whether Microsoft, someone else, or no one will end up with Yahoo, the market suggests that a deal will get done. As of Friday, Yahoo's stock was trading at $28.17 -- lower than the $31 per share Microsoft offer, but still well above the $19.18 price it was trading at the day before Microsoft went public with its bid.
But forget for a minute about the potential synergies the two merging companies could enjoy. And forget about the fact that Google and News Corp could still end up blocking the deal. A Yahoo/Microsoft marriage could potentially have a positive effect on carriers around the world.
Both companies bring a lot to the table in the world of IPTV. Yahoo makes many of the applications currently running on a lot of carriers' platforms and has great business relationships with many telcos. And then Microsoft has its IPTV middleware software along with its DVR portal and MSN.
What you would end up with essentially is a single company that could provide the IPTV middleware, set-top box portal, content, and search capabilities, and, on top of all that, place advertising on the network.
"In the U.S., the mindset is all about the triple play and the three screens," says Heavy Reading senior analyst Adi Kishore. "This would provide a great way to integrate Yahoo's applications and deliver them to the set-top box."
In the U.S., on the surface it would seem as if AT&T Inc. (NYSE: T) stands to gain the most from the potential merger since it has deep business relationships with both companies, but the exact opposite could be the case. "AT&T has been looking to integrate the two for a while now, and this is already well under way," says Kishore. But other telcos could see a benefit as well.
"I think BT Group plc (NYSE: BT; London: BTA) is an example of someone who could see a big impact since they have a relationship with both, but it's nowhere near as developed as AT&T's," says Kishore. "There is a lot of potential cross-selling benefit to be had."
But aside from the collaborative benefits of getting more content to the set-top box with ease, there is also the natural progression to the mobile phone that could be aided by the merger. "Yahoo is further along in the mobile environment. It's this three-screen experience that everyone is looking at where the combination could be most beneficial," says Kishore.
— Raymond McConville, Reporter, Light Reading