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Analyst: Yet Another Microsoft-Yahoo Scenario

In a report Tuesday, Cowen & Co. Analyst Jim Friedland handicaps the different iterations of possible Yahoo-Microsoft (NSDQ: MSFT) deals in light of the dismal performance of Microsoft’s online-services unit last quarter. The most likely scenario, according to Friedland? No deal at all. But if a deal does take place, Friedland puts his bets on an arrangement which he first floated last October in which Microsoft would trade its online services business and possibly cash for a stake in Yahoo (NSDQ: YHOO).

His reasoning: By shedding the online-services business, Microsoft would be able to eliminate the unit’s “drag” on earnings. (Losses more than doubled to $575 million last quarter). At the same time, Microsoft would be able to jump back into the business in full force if it ever wanted to by purchasing all of Yahoo some time in the future. Yahoo, meanwhile, could hold on to its search business and monetize both companies’ online content, which Friedland says Yahoo does better than Microsoft.

Friedland’s scenario, though, is not the one that is being bandied about the most in press reports on a possible deal. AllThingsD’s Kara Swisher reported several weeks ago that Yahoo and Microsoft were considering a partnership in which Yahoo would sell Microsoft’s display ads, while Microsoft would run both companies’ search businesses. And despite the mounting losses, Microsoft executives gave no indication during last week’s earnings call that they were fed up with the online services unit just yet.

2 Responses to “Analyst: Yet Another Microsoft-Yahoo Scenario”

  1. **Yahoo is in trouble due to poor management, incompetence at many levels and a touch of *corruption. Yahoo needs to sell off entirely because no one (including the able Bartz) can fix the problems any time soon. Internet leadership requires speed, competence,transparency and honesty; all missing in Yahoo…period.
    link to evidence of Yahoo thuggery, or incompetence (scroll down to
    bottom of page); perversely , a reason to BUY:
    http://www.sosbeevfbi.com/hatephonecallsan.html

    **Yahoo now prevents me from all postings.