We're Sorting Through Some Crazy Google/Yahoo Rumors

Google is continuing to try to disrupt Microsoft’s bid for Yahoo, and, we’ve heard, may even be considering a bid to acquire a significant chunk of Yahoo’s stock (keep reading though, we’re calling this a long shot at best).

Google clearly wants to see the status quo continue in the search space, and would rather fight a fragmented market than a single, stronger, Microsoft/Yahoo. That’s why they weighed in shortly after the initial Microsoft bid, saying “Microsoft’s hostile bid for Yahoo! raises troubling questions.”

Sources with knowledge of the deal are saying that Google also hired veteran M&A expert George Boutros as Credit Suisse the day after the Microsoft bid was made, to advise them on how to respond to the deal. That advice, one source says, may be leading Google to place an unsolicited bid to acquire just under 20% of Yahoo’s stock at an inflated price.

The goal isn’t so much to close the deal, which would almost certainly be opposed by U.S. regulatory agencies. But rather to throw another curve ball at the Yahoo Board, which is already dealing with the Microsoft bid and a likely challenge to their board seats this June. If the Yahoo Board, particularly the outside board members, were preparing to fold to Microsoft, a Google bid might give them pause. And any delay buys Google time – during which other factors can come into play to stop the deal.

“It’s a relatively cheap way for Google to confuse the situation further, and, potentially delay or disrupt a Microsoft acquisition” said one advisor to the deal, requesting to remain anonymous.

While multiple sources have confirmed that Google is being advised by Boutros, only one is saying that Google might be preparing to place a bid in the next couple of weeks. Credit Suisse analyst Heath Terry said last November “Over time, Google will continue to gain share until they have effectively reached 100 percent.”

Arbitrageurs, who today hold as much as 20% of Yahoo’s stock during this risky period, have not heard this rumor, either, according to another source. These are the guys that hire private investigators to track executives and known advisors, monitor private jet traffic and otherwise gather information about possible M&A deals through any legal (and sometimes not so legal) means at their disposal. Generally they hear rumors first, and trade on the information before the press gets their hands on it. For example, some arbitrageurs say they had already factored in News Corp.’s possible Yahoo bid days before we broke the news. The fact that the arbitrageurs holding yahoo stock haven’t heard anything about this makes the rumor significantly less likely to be accurate.

Assuming Microsoft does not back away from its bid, look for them to nominate their own slate of directors for the Yahoo board a few days in advance of the March 13 deadline. Google, or anyone else who might try to disrupt this deal, will likely make their move before then.

Thanks to Nathan Lipson at TheMarker (he’s currently shaking down sources in New York) for comparing notes with us on the rumor mongering.