Microsoft approaches internet giant Yahoo with takeover bid

Google's runaway success in the search engine business yesterday threatened to spark an upheaval in the online media world after it emerged that Microsoft has made a tentative takeover approach to internet giant Yahoo.

Talks between the two, though said by people familiar with the situation to be at an early stage, have been prompted by an acceleration in the shift of audience and advertisers online and Microsoft's failure to build an effective search engine and online advertising arms of its own, say analysts and industry executives.

News of the bid approach capped a week of upheaval in the media industry as both new and old media companies tried to catch up with the shift towards digital forms of consumption.

Reuters yesterday said it had received a bid approach, thought to have come from Canadian publisher Thomson, while Rupert Murdoch's News Corporation rocked the newspaper world earlier this week with its unsolicited bid for Dow Jones, whose assets include the internet's biggest paid-subscription site and one of Reuters' main newswire competitors.

Yahoo's shares jumped 17 per cent early yesterday on news of the talks, valuing the company at more than $44 billion (€32.45 billion). However, the shares are still about 25 per cent below their level at the start of last year. Microsoft's shares fell by nearly 2 per cent.

With one of the biggest audiences on the internet, reaching across a range of markets from finance to dating, Yahoo would make a prize catch for any company, said Imran Khan, internet analyst at JPMorgan. For Microsoft's chief executive, Steve Ballmer, who is estimated to have spent hundreds of millions of dollars in the past three years to try to build both a search engine and an online advertising network capable of keeping pace with Google, the deal would also mark an aggressive new front.

This battle has become more intense in recent weeks following Google's $3.1 billion agreement to buy DoubleClick, which would launch it into the online display advertising business. But combining the two would create huge management and cultural challenges, analysts warned. The talks are the latest in a series of on-again off-again discussions over the past year.

The bid approach to Yahoo points to growing frustration at Microsoft after more than a decade of trying to become a major force on the internet.

While its MSN service claims one of the biggest audiences, it has failed to compete with a succession of internet leaders, from AOL to Yahoo and Google.

"They've spent $1 billion building a business that is melting like an ice cube today," said Youssef Squali, an analyst at Jefferies & Co.

- (Financial Times service)