Week in review: Yahoo in Microsoft's sights

The two companies give us a few clues on their prospective deal; Washington takes on file swapping at colleges; and iPhone storage grows.

A week after Microsoft announced its bid for Yahoo, a clearer picture of the relationship between the pursuer and the pursued is emerging.

If its $44.6 billion bid for Yahoo goes through, Microsoft says it can find $1 billion in cost cuts by combining Yahoo's business with its own Internet services operation, however CEO Steve Ballmer says the Yahoo name isn't one of the items on the chopping block.

"Yahoo, the brand, will live," Ballmer told BusinessWeek.

Even if the brand lives, though, it is unclear which of Yahoo's technologies Microsoft will adopt. A merged company will need to choose among two e-mail systems, two ad platforms, and two instant-messaging systems, to name just a few of the many overlaps.

Ballmer spent plenty of time talking about Yahoo during a meeting with financial analysts on Monday. However, the CEO offered little news with regards to the takeover attempt. He reiterated many of the things he said when originally announcing the deal, talking about the need for scale in the business and the benefits of combining the two companies' research-and-development efforts.

Ballmer also echoed Microsoft general counsel Brad Smith's comments--that Microsoft buying Yahoo will increase competition by creating a stronger alternative to Google, whereas other potential options for Yahoo would ultimately reduce competition.

Monday's meeting with analysts came a day after a Google executive said the proposed Microsoft-Yahoo merger could threaten the openness on which the Internet is based. The offer "raises troubling questions," David Drummond, Google chief legal officer, wrote in a blog posted Sunday.

"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies--and then leverage its dominance into new, adjacent markets," he wrote.

CNET News.com readers focused on the changing landscape of the market.

"I bet Google is engaging in misdirection, that it really wants the takeover to succeed," wrote one reader to the News.com TalkBack forum. "It will weaken even Microsoft to spend that much money on the takeover and it will prove very difficult to effectively integrate the Yahoo and Microsoft search and ad efforts."

So how would Microsoft pay for the acquisition, if it went through? It might borrow some of the money. Microsoft Chief Financial Officer Chris Liddell said the software company may issue some debt to finance the cash portion of its 50-50 stock and cash offer for Yahoo, instead of drawing down its entire $21 billion cash pile.

"It's likely we're actually going to borrow for the first time," Liddell said.

Yahoo, meanwhile, said in a brief FAQ posted to its site that it is "undertaking a deliberate review process" of the offer and warns it could "take quite a bit of time." Yahoo said its process "will include evaluating all of the company's strategic alternatives--including maintaining Yahoo as an independent company." The alternatives could include pursuing bids from other companies, Yahoo said.

Jerry Yang, Yahoo's co-founder and chief executive, issued two rally calls to the troops this week, according to a filing with the Securities and Exchange Commission. The second companywide e-mail in three days included not only encouragement to employees, but touted the company's recent activities.

Just hours after word of the proposed deal emerged a week ago Friday, the U.S. House of Representatives Judiciary Committee's antitrust task force said it planned to hold a February 8 hearing to examine "The State of Competition on the Internet," including Microsoft's Yahoo plans.

But since then, "scheduling conflicts" have intervened, forcing the panel to cancel the hearing for the moment, a Democratic aide told CNET News.com on Thursday. A new date has not yet been set.

Meanwhile, a rival House committee recently announced plans to keep an eye on any merger activity, and a Senate antitrust panel said it will be prepared to hold a hearing if Yahoo accepts Redmond's offer.

Business in the Beltway
Even though lawmakers couldn't find time to focus on Microsoft-Yahoo, they did manage to get some other work done.

The U.S. House of Representatives overwhelmingly approved a higher-education funding bill that includes controversial new antipiracy obligations for universities.

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