Microsoft takeover bid backs Yahoo into corner

SAN FRANCISCO — Microsoft Corp.'s $41 billion takeover bid appears to have backed Yahoo Inc. into a corner, leaving the struggling Internet pioneer with the unpleasant choice of selling to a detested rival or pursuing other agonizing alternatives likely to require the help of an even fiercer foe, Google Inc.

At least that appeared to be the consensus emerging among analysts Monday as Wall Street awaited Yahoo's response to last week's unsolicited offer from Microsoft.

Yahoo says its board is going to take its time reviewing Microsoft's bid along with other options that could keep the company, based in Sunnyvale, Calif., independent.

"At the end of the day, I don't think they are going to be able to turn down Microsoft," predicted technology investment banker Peter Falvey of Revolution Partners, echoing a widely held sentiment.

But if Yahoo spurns Microsoft, analysts believe it probably will have to swallow its pride and forge an advertising partnership with Google.

Under this scenario, Yahoo would rely on Google to run its search engine while joining thousands of other Web sites that depend on the Internet search leader for a steady stream of ad revenue generated from text-based links that produce commissions with every click.

But getting Google's advertising help probably wouldn't be enough to trump Microsoft's offer by itself. To placate shareholders, Yahoo probably would have to line up enough money to pay a special dividend or perhaps even take the company private in a leveraged buyout.

Going private might be even more painful for Yahoo's 14,300 employees than a sale to Microsoft.

To help repay the more than $20 billion debt that would be incurred in a leveraged buyout, Yahoo would likely have to fire about 4,500 employees, or 31 percent of its work force, Stifel Nicolaus analyst George Askew estimated Monday. Yahoo also probably would have to sell about $12.5 billion worth of investments in several promising Internet companies, including Alibaba.com and Yahoo Japan.

Like most analysts, Askew still believes Yahoo will wind up in Microsoft's clutches because the world's largest software maker appears to be a determined bidder with more financial firepower than just about every other conceivable suitor.

The list of so-called "white knights" willing to come to Yahoo's rescue appears to be dwindling. Several of the most logical candidates, including News Corp., AT&T Inc. and Comcast Corp., reportedly have no interest in trying to top Microsoft's bid.