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NEW YORK - SOME Microsoft shareholders say the software maker's US$44.6 billion (S$63.2 billion) bid for Yahoo may backfire and reduce its ability to compete with Google in Internet consumer services and advertising.
'This is a stupid deal, and I'm not happy,' said Ms Jane Snorek, who helps manage more than US$70 billion in assets at First American Funds in Minneapolis.
She said her firm began selling much of its Microsoft position last Friday, when the stock dropped 6.6 per cent, the most since April 2006.
'I'm expecting slow market- share erosion from Microsoft and Yahoo.'
Microsoft chief executive officer Steven Ballmer is attempting the biggest technology takeover ever after his own efforts failed to narrow the gap with Google.
Acquiring Yahoo would still leave Microsoft with a smaller share of the Web search market, and Mr Ballmer would have to cope with the distraction of combining the businesses, said Mr Colin Gillis, an analyst at Canaccord Adams in New York.
'Sergey and Larry are going to have no problems sleeping,' Mr Gillis said, referring to Google founders Sergey Brin and Larry Page. 'I don't see them tossing in their beds tonight.'
Meanwhile, the potential combination of Microsoft and Yahoo could put even more pressure on Time Warner to take action on its struggling AOL unit.
If Microsoft and Yahoo combine, it would eliminate two potential buyers for AOL and create a powerful, deep-pocketed competitor in online advertising, just as AOL is undergoing a major overhaul, transforming itself from an Internet access provider into an online advertising company.
On the plus side, the combination puts a high value on Yahoo and its advertising business, and that could raise the price AOL would fetch if it were to go on the block.
Another likely contender for AOL would be Google, which already has an extensive search advertising partnership with AOL and holds a 5 per cent stake in AOL that it purchased for US$1 billion in late 2005.
But Google has the right to trigger an initial public offering of that stake beginning July 1.
If it exercises that right, Time Warner would also be able to buy the stake back instead.
Mr Michael Nathanson, a media analyst at Sanford C. Bernstein & Co, said in a note to investors that the potential combination of Microsoft and Yahoo 'robs AOL of the two most likely and able suitors', though he did mention another potential buyer - News Corp, the media conglomerate that owns MySpace.
BLOOMBERG NEWS, ASSOCIATED PRESS
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