Google May Finance an Offer to Acquire Yahoo

By Brian Womack - Oct 23, 2011 1:45 AM GMT+0700

Google Inc. (GOOG) is considering providing financing for an acquisition of Yahoo! Inc. by another company or a group of bidders, according to a person who has been briefed on the matter.

The company may opt not to take part in any offer and hasn’t engaged in serious discussions with would-be partners, said the person, who asked not to be identified because the deliberations are private.

Yahoo is weighing strategic options after firing former Chief Executive Officer Carol Bartz, in part for her failure to keep pace with Google in the online advertising market. Google, which is under regulatory scrutiny from governments around the world, may lend its financial support to preserve Yahoo as a rival and bolster competition in the Internet industry, said Greg Sterling, an analyst at Opus Research in San Francisco.

“If competition dissipates or diminishes, then the hand of regulators is strengthened,” Sterling said. “If competition is diminished or marginalized, then all the arguments about Google being a monopoly ring more true.”

Google, which has $42.6 billion in cash and short-term investments, is considering helping finance other bidders, rather than trying to acquire Yahoo outright, the person said.

FTC Review

The U.S. Federal Trade Commission began a review of Google’s business practices, including search and advertising, the company said in a regulatory filing in June. The European Union and the state of Texas also have begun investigations of the company’s leadership in search and advertising markets.

Potential financing by Google for a bid for rival Yahoo has parallels with the $150 million investment that Microsoft Corp. (MSFT) made in competitor Apple Inc. in 1997 to help preserve competition in the computer market, Sterling said.

Still, regulators might scrutinize any Yahoo acquisition effort that involves Google. The U.S. government threatened to challenge an earlier proposal by Google to place ads on Yahoo’s site, causing Google to abandon the effort in 2008.

Representatives of Sunnyvale, California-based Yahoo and Mountain View, California-based Google declined to comment. The Wall Street Journal reported earlier today that Google is considering financing a bid by private equity firms for Yahoo.

A growing roster of private equity firms is considering whether to pursue Yahoo, which has a market value of $20.35 billion. Microsoft is weighing providing financing, a person familiar with the matter has said.

A potential investment by Microsoft, a longtime Google rival, also may have prompted Google’s interest in a financing deal involving Yahoo, Sterling said.

Alibaba Interest

Alibaba Group Holding Ltd., whose largest shareholder is Yahoo, has said it’s “very interested” in the Web portal, an arrangement that would help the Chinese company buy back its 43 percent stake.

KKR & Co. and Blackstone Group LP (BX) are among firms weighing an offer for Yahoo, people familiar with the matter said earlier this month. Alibaba has discussed a plan with Silver Lake and Russia’s Digital Sky Technologies to make a joint bid, people familiar with the matter have said. Another group interested in an offer includes Providence Equity Partners Inc. and former News Corp. executive Peter Chernin, people have said.

Google advertising customers are able to buy space on Yahoo sites through Google’s Invite Media service, according to the person familiar with Google’s deliberations.

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net