Microsoft and eBay rumours defy facts

Stan Beer
Wednesday, 31 May 2006 10:21

Opinion and Analysis

We recently saw a rumour about Microsoft buying Yahoo, started by a conjecture piece in The Wall Street Journal,  get quashed by Yahoo. Now a similar rumour about Microsoft buying eBay is doing the rounds as a result of a New York Post article.  However, those who may be excited by the prospect are likely to be disappointed. Microsoft probably has enough money in the bank to pay the US$50-60 billion or so to take eBay off the board, without even throwing its shares into the deal. However, there are too many obstacles in the road at present for the deal to happen.

One of those obstacles is Yahoo. It is no secret that the rumours about the Microsoft and Yahoo merger emanated from the fact that Microsoft was interested in Yahoo’s search business, which is bigger than Microsoft’s search business and a major competitor. However, a major part of Yahoo’s business is online content. Microsoft reportedly isn’t interested in owning a content company and Yahoo isn’t interested in selling just its search business.

Yahoo and eBay have recently announced a major alliance, which some view as the first step toward an eventual merger. The alliance is far reaching and makes perfect sense given the synergies between the two companies. It involves eBay incorporating Yahoo search ads on its site. It involves Yahoo using eBay’s PayPal exclusively for online transactions on its site. It may also involve tie-ups between eBay’s Skype and Yahoo’s messaging service. The companies have publicly committed to the alliance and are working closely together.

If Microsoft really wants to buy eBay and eBay management are seriously talking with the software market leader, then why has the online retailer just announced an alliance with Yahoo?  Given the nature of the alliance, Microsoft might have to consider trying to take over Yahoo as well, which would be a difficult feat even for Microsoft, without even mentioning the regulatory aspects of such a deal.

Analysts are divided as to whether an eBay and Microsoft merger would be a good thing for both companies. Some say eBay would invigorate Microsoft’s internet business and help it compete better with Google. Others say that such a merger would destroy eBay and Microsoft shareholder value because the purchase would be expensive and there are no real synergies between the two companies.

Regardless of what the analysts may say, however, the fact is that eBay and Yahoo both announced their intentions last week. All the rest is just rumour and conjecture.