The Sunday Times of UK reports (more like speculates) that Microsoft (s MSFT) is going to buy Yahoo’s (s YHOO) search business for $20 billion in a very complex transaction. The Sunday Times claims that Jonathan Miller, formerly chief executive of AOL, and Ross Levinsohn, a former president of Fox Interactive Media, are going to run the new management team.
Under the terms of the proposed transaction, Microsoft would provide a $5 billion facility to the Miller and Levinsohn management team. The duo would raise an additional $5 billion from external investors. This cash would be used to buy convertible preference shares and warrants which would give it a holding in excess of 30% of Yahoo. The external investors would also have the right to appoint three of Yahoo’s 11 board directors. The talks with Yahoo involve Microsoft obtaining a 10-year operating agreement to manage the search business. It would also receive a two-year call option to buy the search business for $20 billion. That would leave Yahoo to run its own e-mail, messaging, and content services. It is expected that the operating agreement would boost Yahoo’s income by as much as $2 billion per annum. (my emphasis added)
If true, that would value the search business — not exactly a champion — more than Yahoo’s actual market value of approximately $16 billion. Microsoft might be desperate to win online, but as we have seen time and again, trying to buy share in search is a failing strategy. With little or no sources, I find this story as unreliable as a piece of swiss cheese left for too long in the pantry. Levinsohn who described the Times story as “total fiction” seems to agree. What are your thoughts?