Rumors of Yahoo buyout raise questions for experts

October 15, 2010 at 12:00a.m.

San Jose Mercury News

SAN JOSE, Calif.

Persistent reports that AOL and several private equity firms are preparing a bid to buy Yahoo and take it private may indicate that the independence of one of Silicon Valley’s most-famous brands is in question once again, although experts said there are doubts about how workable such a deal might be.

The Wall Street Journal reported Wednesday that Silver Lake Partners and Blackstone Group are among a group of private equity firms that have expressed interest in either teaming up with AOL to buy Yahoo or trying to take it private on their own. Two years after Yahoo rebuffed a takeover bid of $33 a share from Microsoft, the rumors come with Yahoo’s stock price stagnant during the past year, trading at less than half what Microsoft offered in 2008.

Responding to those rumors, experts questioned whether combining AOL with Yahoo would create a company with significantly stronger technological and advertising assets than the two companies have alone, and said they doubted Yahoo would accept a takeover in a price range that private equity would be willing to bid.

“Yahoo is going to fight this tooth and nail,” said Rick Munarriz, a senior analyst at the Motley Fool. “It’s just, how would you pull it off? Yahoo won’t come cheap,” especially since AOL is a much smaller company. Yahoo’s market capitalization of $20.6 billion is nearly eight times greater than AOL’s $2.7 billion value.

But the persistent rumors, Munarriz and other observers said, are an indicator of the intense pressure on CEO Carol Bartz to improve Yahoo’s execution, as the Sunnyvale, Calif., Internet portal rushes to complete its high-stakes search alliance with Microsoft and to parry Google’s thrust into Internet display advertising — Yahoo’s bread and butter.

The rumors “certainly are signs to the marketplace that, hey, you guys need help,” said Laxmi Poruri, an analyst with Primary Global Research. “It’s obviously not happening internally. There needs to be some sort of major change. ... They haven’t executed on their main business.”

But despite its struggles, including the recent resignations of three high-ranking executives, Yahoo remains a powerful global brand.