Murdoch Could Buy Yahoo! (YHOO): With Google's Help

News Corp (NWS) would probably love to own Yahoo! (YHOO). In December, in the US, Murdoch’s online properties had 81,8 million unique visitors. Most of that is due to MySpace. Yahoo! had 136,6 million users for the same period. Google had 132,9 million.

For Murdoch, combining the world’s largest social network with the world’s largest portal would yield a huge pool of online ad inventory, perhaps the largest in the world. It would allow him unprecedented access to the web for his properties like Fox and The Wall Street Journal.

Murdoch’s problem is that he can’t afford Yahoo!. News Corp has a market cap of $61 billion and Yahoo! sits at $40 billion. Even if Yahoo! Japan and the portal company’s stake in China e-commerce company Alibaba were sold off, a buyer would have to come up with at last $25 billion.

There is somewhere Murdoch could go to get that money. Google (GOOG) would almost certainly advance News Corp a few years of money against having the exclusive search franchise for Yahoo!. Google has already given News Corp guarantees from search results sold on MySpace. What could News Corp get for the rights? Probably $4 billion a year. A five year advance would give News Corp another $20 billion for a takeover fund. Murdoch could also cut out most of the R&D spending and staff at Yahoo! pushing operating income way up.

Google would get what it wants. It will have pushed Microsoft to the back of the search engine line. Murdoch would own the world’s largest internet platform. Perhaps Google’s founders would even let Murdoch fly on their new 747,

Douglas A. McIntyre