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If Verizon Walks Away, Then Microsoft Should Finally Buy Yahoo

From The blockbuster Verizon Communications Inc. (NYSE:VZ) buyout of Yahoo! Inc.’s (NASDAQ:YHOO) core web businesses is in jeopardy.

Verizon is reportedly considering asking for a big discount to its $4.8 billion buyout price after a second massive hack of Yahoo’s user accounts was revealed this week. Many analysts believe Verizon will simply walk away from the deal altogether.

Such a development would create a big opportunity for another buyer to step in and purchase Yahoo’s valuable web properties at a discounted rate. That buyer could be — and probably should be — Microsoft Corporation (NASDAQ:MSFT).

Microsoft and Yahoo have a long history of working together. In fact, Microsoft tried to buy Yahoo for $45 billion back in 2008, eventually taking its hostile bid directly to shareholders. But the deal wasn’t meant to be, with Yahoo rejecting the bid as too low.

The two companies did salvage a major tie-up not too long afterwards, however. The so-called “Yahoo-Microsoft Search Alliance,” which still exists to this day, dictates that Yahoo uses Microsoft’s Bing search technology to power desktop web searches on Yahoo’s platforms. Under the current version of the deal, Microsoft powers the search results and ads on 51% of Yahoo desktop searches, with Yahoo retaining full control over mobile search. Subsequently, Yahoo partnered with Google on at least part of the 49% of desktop searches it controls, along with mobile searches, where it has no restrictions.

All of that sounds rather complicated, but the bottom line is that Microsoft and Yahoo have been in bed with each other for years, and now Microsoft might have a renewed chance to make their relationship official. The golden goose of the deal would likely be the mobile search traffic that Microsoft currently has no stake in.

You see, mobile is the entire reason why Verizon wanted to buy Yahoo to begin with. Verizon has over 142 million mobile phone subscribers in the U.S., and it has big plans to further monetize those users by investing heavily in various media plays. In fact, Verizon actually planned to merge Yahoo with AOL, which it acquired last year, into a sort of Frankenstein monster of web 1.0 media giants.

But now the Verizon-Yahoo deal is in peril, which just may create the opportunity Microsoft has been craving for nearly ten years.

Yahoo’s main consumer-facing internet properties — Mail, Search, Tumblr, Sports, Finance, Lifestyle and News — all fold well into Microsoft’s Windows and web platforms. Many of the same synergies that Microsoft envisioned back in 2008 still exist today, except the asking price is much cheaper.

Plus, Microsoft’s deal to acquire business social networking giant LinkedIn just closed, meaning the company is probably back on the prowl to acquire more assets.

Thus, rekindling its old romance with Yahoo might make more sense than ever. Microsoft just needs Verizon to end its seemingly ill-fated affair first.

Microsoft currently has a POWR Rating of B (Buy), and is ranked #1 of 58 stocks in the Software – Application category.

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