Summary:

After weeks of rumors about Microsoft (NSDQ: MSFT) considering another bid for Yahoo (NSDQ: YHOO), Dealbook is reporting that the software g…

Yahoo Microsoft
photo: Flickr/Edgeworks Limited

After weeks of rumors about Microsoft (NSDQ: MSFT) considering another bid for Yahoo (NSDQ: YHOO), Dealbook is reporting that the software giant has signed a nondisclosure agreement with the portal, citing an unidentified person briefed on the matter.

If that report is true, it will put Microsoft in competition with PE firms Silver Lake, Providence Equity Partners, Hellman & Friedman, TPG Capital, Chinese e-commerce giant Alibaba and Russian technology investment firm DST Globa in taking a look at Yahoo’s financials in preparation for a bid, three years after its last offer was rejected.

Microsoft had offered as much as $33 a share for Yahoo. The company’s stock has generally traded at around $15, though the Microsoft news has appeared to boost the stock to nearly $14.95 by early afternoon on Wednesday.

In the spring of ’08, talks broke down over the gap between what Microsoft was willing to offer and what Yahoo was willing to accept. Microsoft wouldn’t offer more than $33 a share-which valued Yahoo at roughly $47 billion, after initially bidding $41 billion that February. In the end, Yahoo’s founder Jerry Yang wouldn’t take less than $37 per share.

After all that, Yahoo eventually handed over control of its search results to Microsoft’s Bing, a process that was completed with the assumption of the portal’s European search business in August.

A tie-up between Microsoft and Yahoo would certainly make life much more difficult for their vulnerable portal rival AOL (NYSE: AOL). Earlier this month, though, AOL struck a display ad sales alliance with Microsoft and Yahoo. The deal involves putting portions of their unsold inventory through through their own respective networks.

In any case, the formal combination between Yahoo and Microsoft would probably not make much of a dent in the rising display share being taken by Google (NSDQ: GOOG) and Facebook, as advertisers have placed more value on the scale and engagement, which tends to be more easily targeted than anything the portals can provide. Given the wide reach of both Microsoft and Yahoo independently, a singular entity would already come with a great degree of demographic overlap.

Still, as both struggle against trends that favor their rivals, merging still seems like the only viable answer to declining market share.

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