Is Microsoft Corporation About To Buy Yahoo! Inc.?

YHOO's price today a far cry from MSFT's last bid attempt

According to reports, Microsoft Corporation (MSFT) has been in discussion with private equity companies who may assist them in a possible purchase of Yahoo! Inc. (YHOO). Reuters cites a source familiar with the situation who claims that executives at Microsoft have been meeting with potential Yahoo investors. Both MSFT and YHOO stocks finished up in late Tuesday trading, with YHOO ahead over 3% and MSFT up 2% on a strong day for markets in general.

Microsoft and Yahoo Have a Long-Term Relationship

The pair of companies have a long running relationship related to search and advertising. Microsoft is said to want to maintain that connection and buy Yahoo’s core business, which includes search, email and news. A report in Re/code said that the company has spoken to several private equity firms and would be willing to provide “significant” financing for a bid.

As it stands Yahoo has a market capitalization of approximately $33 billion. However most of that is due to its stakes in Chinese e-commerce firm Alibaba (BABA) and Yahoo Japan.

Takeover Talks are Centered on Yahoo’s Core Internet Business

Yahoo’s core business is worth $6-8 billion. Yahoo has struggled against Google (GOOGL) and Facebook (FB) in the competition for online and mobile advertising.

The recruitment of former Google executive Marissa Mayer as CEO has proven ineffective. Mayer has had four years in charge of the company, to little effect.

Activist hedge fund Starboard Value LP last week tried to overthrow the entire Yahoo board, including Mayer. The fund has a long history of activism at Yahoo.

Microsoft has expressed an interest in acquiring Yahoo in the past. In 2008 former CEO Steve Ballmer attempted a $45 billion buyout that was ultimately unsuccessful.

A possible buyout would cost Microsoft far less today. Re/code believes that Yahoo’s board would be willing to sell the core internet business for $10 billion.

Sources cited by Re/code’s claim that Microsoft would not be willing to make a higher bid. Other companies such as AT&T (T), Verizon (VZ) and Comcast (CMCSA), have also been in touch with Yahoo about a takeover.

In December Fran Shammo, Chief Financial Officer at Verizon, said that the wireless carrier would consider buying out Yahoo’s core business if it were a good fit.

Microsoft has not made any announcement and is keeping its cards close to its chest.

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