"Yahoo hung up on Google deal before MS’ hostile bid"

Co To Focus On Long-Term Value Creation Instead Of Short-Term Gains
Reuters SAN FRANCISCO


YAHOO executives dismissed a searchadvertising deal with Google due to antitrust concerns, one day before Microsoft made its take-over offer earlier this year, according to court documents made public on Monday.

The position came to light in a complaint filed by attorneys representing two Michigan pension funds in a shareholder lawsuit that aims to revoke yahoo take-over defences and press the company to renew merger talks with Microsoft.

“We are focused on long-term value creation rather than short-term gains,” said a Yahoo document prepared for Yahoo executives ahead of an ‘all hands’ internal meeting on January 30 — the day before Microsoft made its merger offer.

Bracing for employee questions over whether Yahoo should outsource its searchad sales to Google, executives were prepared to argue that any short-term gains would derail Yahoo’s long-term push to become a “must buy” for advertisers.

“Short-term analysis of the revenue potential of outsourcing magnetisation may not take into account the longer term impact on the competitive market if search becomes an effective monopoly,” an excerpt from the company document said. Magnetisation refers to sales of search-related ads.

These comments appear to contrast with Yahoo’s subsequent position when it announced on April 9 that it was conducting a test with rival Google, the market leader in Web search and related advertising, to rely on Google to sell its search ads.

The turnabout was part of a strategy by Yahoo management to seek alternatives for its business instead of settling for Microsoft’s cash-and-stock offer at $31 per share, which the company’s board had rejected as undervaluing Yahoo’s assets.

Microsoft challenged the possible Google-Yahoo tie-up as anti-competitive, citing Google’s growing dominance of the Web search business and its even larger share of ad sales tied to Web search results. Government regulators also rushed to say they would investigate any Google-Yahoo partnership.

Web search is increasingly strategic as most people find information on the Internet via such systems. Search-based advertising, because of its high degree of targeting, has become a great money spinner for Google.

Yahoo has acknowledged that a gap exists between what it makes running its own advertising alongside its search results and the improved payback it could see by using Google’s ad-sales systems in conjunction with Yahoo’s search operation.

“We, in fact, have some understanding of what they (Google) could do for us and what we could do for them,” Yahoo chief executive Jerry Yang told a conference last week.

A Delaware Chancery Court judge ruled on Monday that excerpts from confidential Yahoo company documents could be made public in the investor suit after initially sealing some of the information in a filing made last month.

A Yahoo statement said the company was disappointed at the judge’s ruling to unseal Yahoo internal documents but said it would have little bearing on the outcome of the case. A company spokeswoman would not comment on papers revealed in the case.
STORY BOARD

STING IN TALE

Microsoft challenged the possible Google-Yahoo tie-up as anti-competitive, citing Google’s growing dominance of the web search business and its even larger share of ad sales tied to web search results

AD BLITZ

Yahoo has acknowledged that a gap exists between what it makes running its own advertising search and the improved payback it could see by using Google’s ad-sales systems in conjunction with Yahoo’s search operation

"CALLING SHOTS MERGER OPTIONS"

1 Modis sell 40% in Spice directly to Idea before merger. TM, which holds 39%, gets a stake in Idea post-merger

2 TM first buys Modis’ stake in Spice and co merges with Idea later. Even then, TM becomes a shareholder in Idea

Why Idea may want to buy

Strong foothold in Punjab and Karnataka circles, which boast of high average revenue per user
Merged entity will become fifth-largest telco in terms of mobile subscribers (28.5 m)
Idea set to become pan-India operator by 2009

Why Modis may want to sell

Spice’s inability to expand & become pan-India player
DoT had rejected pan-India licences for Spice citing poor net worth
Spice’s expansion plans yet to be finalised
TM known to share frosty relationship with Modis

"Idea and Spice redial merger"

Cos Weighing Two Options
Joji Thomas Philip, Chaitali Chakravarty & Boby Kurian
NEW DELHI/BANGALORE


IDEA Cellular and Spice Communications are again in talks for a merger. ET has learnt from sources that two options are being considered. The first is that Modis will sell their 40% stake in the company directly to Idea before the merger. Telekom Malaysia (TM), which has a 39% stake in Spice, will then get a stake in Idea after the merger. The second option is that Telekom Malaysia will first buy the Modis’ stake in Spice and the company will merge with Idea later. In such a scenario, too, TM will end up being a shareholder in Idea.

Spice Communications chairman BK Modi on Tuesday confirmed ET’s report last week that he was looking at a stake sale. He did not mention Idea’s name but said Etisalat of the UAE and Japan’s NTT DoCoMo could be interested parties, and added that he was open to Telekom Malaysia increasing its stake to 74% in the company. “TM partners Etisalat and NTT DoCoMo in some markets. If they want to bring them in as part of the deal (for taking stake to 74%), we are open to that,” Modi said.

However, a senior Idea source told ET that it is Idea Cellular which may be closest to the deal. Despite repeated attempts, Idea Cellular MD Sanjeev Aga could not be contacted over the issue. But another Idea executive, who did not wish to be identified confirmed that talks have taken place between the two companies. Idea keen on expansion
“It has been happening on and off; talks are being held at the promoter level. There has been no final decision on the issue yet,” the source added.

In June last year, merger talks between the two companies broke down over differences on valuation. According to a source, Idea had put the enterprise value of Spice at $700 million and was willing to go up to $1 billion but Spice wanted the value to be hiked to $1.3 billion.

The AV Birla Group-controlled Idea may be keen on Spice now largely due to the latter’s presence in the Punjab and Karnataka circles, where Idea is not present. While Idea has been allotted spectrum to roll out operations in these two circles, a fullfledged rollout will take more than six months. On the other hand, a merger will give Idea a strong foothold in the two circles, which also boast of high average revenue per user. The merged entity will become the fifth-largest Indian telco in terms of mobile subscribers (28.5 million plus) after Bharti, RCom, Vodafone and BSNL and move ahead of Tata Teleservices, which at present have 25 million subscribers. Idea has been allotted spectrum in the 11 circles where it does not operate at present and is readying plans to roll out mobile services there. It is set to become a pan-India operator by 2009.

The reason why the Modis may want to exit Spice is due to its inability to expand its presence and become a pan-India player, which is crucial for profitability in the world’s most competitive telecom market. The department of telecom had recently rejected Spice’s application for pan-India licences citing the company’s poor net worth, and instead awarded its licences for just four more circles-Andhra Pradesh, Haryana, Delhi and Maharashtra. However, even in these four circles, Spice’s expansion plans are yet to be finalised as TM has refused to pump in the requisite resources. The Malaysian telco is known to share a frosty relationship with the Modis, sources added.

Spice has just under 4.5 million of India’s over 269 million mobile users — a market share of a mere 1.6% — and is 39.2% owned by Malaysia’s state-controlled Telekom Malaysia. The BK Modi family has a 40.8% stake through Modi Wellvest while the remaining 20% is held by the public and financial institutions.