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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

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May 4, 2007 5:50 PM

Microsoft merging with Yahoo!?!#@!!!

Posted by Brier Dudley

The New York Post owes everyone a good follow-up story.

You can't just drop a bombshell that jerks around 80,000 Microsoft and Yahoo! employees, rocks Wall Street and then fizzles before the day is over.

The Post should investigate -- and report -- whether its anonymous investment banker sources made any money off the huge run in YHOO caused by its story.

If the Post doesn't do this, the SEC might. We don't need any more reporter subpoenas.

At the very least, the Post needs to go back to its sources and clarify if and when Microsoft and Yahoo! ended their latest round of merger discussions.

Did the talks end sometime Friday, after the Post story boosted YHOO?

Were the talks already tapering off by the time the investment bankers whispered to the Post? Perhaps the companies had gone from talking merger to talking strategic partnership -- an outcome that would involve fewer banking fees.

Could those banking sources be trying to curry favor with hedge funds by playing games with YHOO?

I don't mean to bash the Post's reporting. It's obviously got more sources on Wall Street than I do, and it's been right several times with "talks pending" stories involving Microsoft, Google, AOL and eBay.

But now we're all waiting for the follow-up. Until then, it's ammunition for the old-media bashers who say we never get anything right.

In the meantime, it's fun to speculate on all the reasons why Microsoft should or shouldn't hook up with Yahoo!

I'm nursing about 30 different theories.

I wonder if the Post was correct in reporting that "Microsoft has intensified its pursuit of a deal with Yahoo!, asking the company to re-enter formal negotiations," but a full-blown merger wasn't ever in the cards.

Is Microsoft really so blinded by the war on Google that it would put all its chips into what's mostly a play for online advertising -- a challenging, cyclical business that will suffer if the economy turns south?

Was Microsoft floating a merger to start a discussion in hopes of walking away with a joint-operating agreement that would cement its alliance against Google?
Microsoft may want a JOA to prevent Yahoo! from hooking up with Skype on a new wireless broadband network, a possibility floated this week by Business Week.

The prospect of a Yahoo!-eBay-Skype VOIP/Wireless service challenging Microsoft's messaging and communication efforts seems like a bigger long-term threat than Google buying DoubleClick.

Another interesting follow-up story may be to explore how much Steve Ballmer and Terry Semel are personally interested in a blockbuster deal. Before Microsoft's last quarter, at least, there were some frustrated Wall Street types calling for their heads.

Maybe Microsoft was just drumming up interest in its Strategic Advertising Summit next week, which will have both Semel and Bill Gates speaking in Seattle.

UPDATE: The Post did run a follow story on Saturday but it didn't say anything about the sources' motivation. It did water down the Friday story, though, with sources saying "the talks with Microsoft are wide-ranging and include everything from an outright acquisition to the purchase of an equity stake to a joint venture setup."

Saturday's story also mentions that other companies are talking to Yahoo! including NBC, Comcast and AT&T, so who knows where it will end up.

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