May 5 (Bloomberg) -- Microsoft Corp. and Yahoo! Inc. have held talks about a partnership designed to boost their share of the Web search and advertising market and catch up with Google Inc., people briefed on the discussions said.
The discussions are in the early stages and focus on a partnership rather than a merger, said one of the people, who asked to remain anonymous because the negotiations are private. Shares of Yahoo jumped the most in three years yesterday after the New York Post said Microsoft wants to buy the company.
Yahoo and Microsoft, the world's largest software maker, have struggled to dent Google's dominance in searching the Web and in the booming market for advertising spots next to search results. A combination would triple Microsoft's share of the U.S. search market to 38.4 percent, rivaling Google's 48.3 percent, according to ComScore Inc.
``It gets them enough economies of scale to be a viable force in search,'' said Walter Price, who oversees about $2 billion including Microsoft shares at RCM Capital Management in San Francisco. ``You have to ratchet up your capital expenditure to compete with Google.''
Adam Sohn, a director in Microsoft's online services group, declined to comment on the report. Joanna Stevens, a spokeswoman for Yahoo, owner of the second most-popular search engine, said the company doesn't discuss ``rumor or speculation.''
Microsoft asked to start talks about a takeover and is working with Goldman Sachs Group Inc. on a possible deal, the Post said, citing unidentified bankers. The Wall Street Journal reported yesterday that the two explored a combination a year ago and have now renewed talks. Later in the day, the newspaper said those merger talks are no longer active.
Market Value
Shares of Yahoo surged $2.80, or 9.9 percent, to $30.98 yesterday in Nasdaq Stock Market trading, the biggest rise since April 2004. Redmond, Washington-based Microsoft slipped 41 cents to $30.56.
Yahoo, based in Sunnyvale, California, has a market value of $42 billion. The company has been valued at as much as $50 billion by Wall Street analysts, the New York Post said.
It may take Microsoft a decade and tens of billions of dollars to catch Google with internal development, said Peter Misek, an analyst with Canaccord Capital Inc. in Toronto.
``Their only other real choice to catapult into a really competitive position is either to buy five to 10 smaller companies or buy something like Yahoo,'' said Misek, who rates Microsoft ``buy.'' He said there is a 60 percent to 70 percent chance a deal will happen in six to nine months.
Previous Partnership
