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Microsoft's Friday offer to purchase Internet company Yahoo for $44.6 billion has drawn the ire of both Web  search giant Google, which says the proposed deal raises "troubling questions," as well as the United States House Judiciary Committee which has scheduled a February 8 hearing on the matter. Over the weekend Google's chief executive Eric Schmidt called Yahoo leader Jerry Yang to discuss a limited partnership and other methods to keep Yang's firm from Microsoft's hostile takeover bid, news agencies are reporting. Google's Statement Sees "Inappropriate and Illegal Influence" Sunday saw Mountain View, California-based Google release a statement in response to Microsoft's offer for Yahoo, written by the firm's senior vice president of corporate development and chief legal officer David Drummond. "Yahoo and the Future of the Internet" states that the search leader considers an open Web environment as having made the successes companies like Yahoo and Google have had over the years possible, and that Microsoft's bid to take over Yahoo "raises troubling questions" and is more than a simple acquisition. Drummond says an open and innovative Internet may be threatened by Microsoft's proposal, asking whether it will wield the same kind of "inappropriate and illegal influence over the Internet that it did with the PC?" The statement says Microsoft's history shows that it has willingly used its "dominance" to enter new markets and "frequently sought to establish proprietary monopolies," leaving a trail of "serious legal and regulatory offenses" in its wake. Drummond also wonders if Microsoft will "extend unfair practices from browsers and operating systems to the Internet?" and says that should the acquisition take place "Microsoft plus Yahoo equals an overwhelming share of instant messaging and web email accounts." Google calls on "policymakers around the world" to answer such questions, and says that a successful takeover would create a powerhouse in the Web portal market since Yahoo and Microsoft "operate two most heavily trafficked portals." Schmidt's phone call to Yang offering his firm's help would most likely not involve Google itself launching a bid to purchase Yahoo, mostly due to the likelihood of the intense regulatory pressure such a move would trigger, but could see the search leader playing a role in helping Yahoo either to remain independent or garner acquisition offers from other firms, according to people familiar with the matter. Even a small involvement by Google, such as an online advertising deal or monetary assistance, may attract antitrust investigations due to the large share of Web search and online advertising the firm has amassed. Should the proposed acquisition go through, Google is expected to have more than six months before its  potential new competitor emerges, time the firm can use to try increasing the sizable lead it enjoys in search and online advertising. "They're going to spend six months to close to a year integrating while Google keeps innovating," according to 360i chief executive Bryan Wiener in a recent AdWeek article. Microsoft's Statement Notes "More Competitive Marketplace" In response to Google's statement by Drummond, Microsoft issued it's own press release and sent chief executive Steve Ballmer out for a press interview, where he said that Yahoo is "considering the offer" his company made Friday. The Redmond, Washington-based company's general counsel Brad Smith said that buying Yahoo "will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising," referring to Google. Microsoft warned that if its acquisition attempt did not go through it would "lead to less competition on the Internet." The statement says Google "is the dominant search engine and advertising company," having "amassed about 75 percent of paid search revenues worldwide." Smith went on to say that Google's share of the search market is more than 65 percent in the U.S. and over 85 percent in Europe, and compared this with a combined Microsoft and Yahoo which together hold "roughly 30 percent combined in the U.S. and approximately 10 percent combined in Europe," according to the statement. Sunday also saw Ballmer answering questions from the media, including the Wall Street Journal, which published excerpts from an interview with the 51-year-old Microsoft leader Monday. Ballmer offered enthusiastic answers to questions such as how the two giant company's would handle the prospect of merging management teams and separate online advertising systems should the acquisition, which he called "clearly a big move for us," take place. "Details need to be worked collaboratively once we've reached a deal, but one can certainly speculate that we don't need two of everything," he told the Journal. Microsoft is expected to look to the huge 2002 Hewlett-Packard acquisition of Compaq Computer Corp., a move involving over 150,000 workers, as an example of how to merge with Yahoo, according to a person familiar with the company's planning. The top priority at a combined Microsoft and Yahoo would most likely be the Web advertising systems that would need to be merged. Ballmer said the preferred method of structuring online advertising sales, auctions, would benefit from a joint Microsoft - Yahoo firm. "Auctions are more efficient when you have large numbers of buyers and large numbers of sellers in the pool," Ballmer said. "Bringing Yahoo and Microsoft together can bring great value," he added. Online advertising will grow until at least 2018 according to Ballmer, who sees traditional media moving largely to online methods as well. "In the longer term -- two, four, five, seven years -- there's no less reason to be optimistic about online advertising than ever before. Offline advertising will all be online sometime in the next 10 years," said Ballmer. He also sees Google as needing stronger competition than it is currently facing. "There's going to be huge growth in online advertising, and we think the market deserves, at least on the advertising platform side, some good competition for the current leader," Ballmer added. Microsoft's CEO expects the acquisition of Yahoo to go through. "I trust this acquisition is going to close. We will then integrate it successfully," he said. "Right now there's not much competition to Google when it comes  to soliciting third-party publishers. We've dug down and done a good job of winning guys like Viacom and Facebook and others, but we and Yahoo together will have a lot of opportunity to make a difference there," Ballmer added. It is in the area of search that Microsoft most wants to break through the grip that Google has held for what in Internet years is a long time. "The number one thing we want to do is break through in search and advertising," Ballmer said. "The reason why Google is a market leader is not because they have products. They're the leader because they're the leader in one product area, called search," he added. Ballmer said that the combined engineering forces of Microsoft and Yahoo could lead to new innovation. "The ability to do more with the talented engineers at Yahoo and Microsoft in search and advertising is compelling," he said. Later Monday Microsoft said that it may look to borrow money to fund some of the $22.3 billion in cash it proposed to acquire Yahoo Friday, with the other half coming from company stock shares. Should it borrow any amount it would be the first time Microsoft has done so. “It’s likely we’re actually going to borrow for the first time,” said Chris Liddel, Microsoft's chief financial officer. Ballmer sees Yahoo's board of directors acting quickly to approve his company's acquisition proposal. "We trust the Yahoo board and the Yahoo shareholders will join with us quickly in deciding to move down an integrated path," Ballmer said. Yahoo Reviewing "All Of Our Strategic Alternatives" Says Email Yahoo filed documents Monday with the Securities and Exchange Commission, including an email message from Yang and Roy Bostock, the firm's new non-executive chairman, to their 17,000 employees. The email, which was published in the Journal and cited by Reuters, refers to "Microsoft's unsolicited proposal," and informs employees that "absolutely no decisions have been made" about it. Yahoo says that the acquisition is only a proposal, and warns that rumors of an "integration process" being underway are unfounded. "[The] board is going to review it thoughtfully and carefully, and do what's right for our great company," the email says, and points out that Microsoft's offer is "one of many options that we're evaluating." Yahoo will respond to Microsoft only "after our board has completed a careful review of all of our strategic alternatives," according to the email. A separate Yahoo press release said board members are "undertaking a deliberate review process," and that the board will "take time to thoroughly evaluate the proposal in the context of Yahoo!'s strategic plans," Yahoo said. "This will include evaluating all of the company’s strategic alternatives – including maintaining Yahoo as an independent company," Yahoo added. In spite of Ballmer's optimism that Yahoo's board will quickly approve the buyout proposal, Yahoo itself said Monday, "A review process like this is fluid, and it can take quite a bit of time." The Yahoo press release admonished premature questions regarding the successful consummation of the acquisition. "It wouldn't be appropriate to speculate about the potential benefits or challenges of a deal," Yahoo said. Yahoo's board members reportedly conferred Friday by telephone after Microsoft's offer. U.S. and European Union Antitrust Concerns In the unlikely event Google were to mount a successful takeover bid of its own for Yahoo, the combined firms would have nearly an 80 percent search share in the United Kingdom and elsewhere, and would be sure to invite regulatory investigators from around the world. Instead Google proceeded over the weekend to accuse Microsoft of attempting to push its desktop computer software dominance into the Web, and called on regulators to closely scrutinize the proposal for Yahoo. The House Judiciary Committee's forthcoming hearing on the proposed acquisition will look into whether it "works to further or undermine the fundamental principles of a competitive Internet." The U.S. Senate may become involved in investigating the deal's "competitive and privacy implications," according to the chairman of its Antitrust Committee, Senator Herb Kohl, speaking Monday. Microsoft appears to be holding fast to the belief that past antitrust rulings against it will not resurface and threaten its plans to buy Yahoo. That appears unlikely according to analysts, who expect an inquiry focusing on some of the successful services both companies offer such as Web-based email. "The potential concern would be that Microsoft, if it acquires Yahoo, could do on the Internet what it did in the personal computer world — make technical standards more Microsoft-centric and steer consumers to its products," according to Stephan D. Houck, a lawyer who has worked on a large case against Microsoft involving multiple states, in a recent New York Times article. Experts on merger law expect challenges by U.S. and European regulators to take between six months and one year, and that the likely outcome is approval of the proposed Yahoo purchase. Google's Washington-based lobbyists appear to have begun preparations for a potential inquiry into Microsoft's proposed takeover of Yahoo. Analysis of Microsoft's Offer If Yahoo's board members do not accept Microsoft's offer, the world's largest software company may launch a boardroom maneuver to replace existing Yahoo board members, using a brute-force method to force the deal through quickly, according to people familiar with the matter. The maneuver involves Microsoft using its right as a shareholder of Yahoo stock to nominate its own set of executives to the Yahoo board followed by a vote to accept Microsoft's offer. Nominations for the Yahoo director positions must be submitted by March 13, bringing the timing of Microsoft's proposal into question. For such a proxy maneuver to succeed Microsoft has to hope Yahoo shareholders see its $44.6 billion bid as especially strong, and in light of enduring two years of decreasing profits, they may. Microsoft's Yahoo Bid Draws Ire of Google and Fed Speculation that Yahoo is considering a switch to Google as its search provider has circulated since Friday's proposal by Microsoft. It is also possible that Yahoo could partner with another large media company such as AT&T, News Corporation, Disney, Comcast, or Time Warner. Yahoo appears to have been in negotiations over the past few weeks to move its search advertising in Europe to Google, according to a recent Journal article. Yahoo's discussions with Google are expected to continue despite Microsoft's offer. Internal speculation among some Yahoo employees involves breaking the company up, according to the Times. Google, which owns 5 percent of AOL, has contacted parent company Time Warner to explore options that could help Yahoo hold off Microsoft's pursuit, according to people familiar with the matter. Related Links:
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12:46 am on Feb. 5, 2008 (utc 0)