Forget the IPO, Facebook could reverse into Yahoo

September 12, 2011

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Now that Yahoo has fired its chief executive, anything could happen to the rudderless Internet hodgepodge. Private equity firms, one of Yahoo’s founders and even AOL are said to be mulling bids. But consider a more radical option: a takeover by the rival most responsible for Yahoo’s fall from grace — Facebook.

It’s of course easy to marshal arguments why Facebook’s creator, Mark Zuckerberg, should avoid staining his company Yahoo purple. The social network is already growing rapidly. Revenue doubled in the first half to $1.6 billion with profit of nearly half a billion.

Moreover, Facebook is a private company without the $20 billion or so of cash needed to buy Yahoo. Since Facebook is just starting to profitably harvest its audience of 750 million users, the firm should stick to its knitting, or so the argument goes.

But Facebook has the ingredients to make Yahoo succeed, starting with a clear mission. Yahoo has struggled to articulate a vision beyond being the first page people see when they open a browser. Beyond that, nothing binds Yahoo’s pieces — news, photo albums, stock quotes, email, job listings and entertainment — together. They look like orphaned applications for a social network.

What unifies Yahoo’s bits and bobs is a relatively robust display advertising platform. In an overall crummy second quarter, display revenue increased 5 percent to $467 million. Facebook is still building out its capacity to sell such ads. A combination would make a compelling pitch to advertisers.

In search, both have a common nemesis in Google. They also have a shared partner in Microsoft, which owns a piece of Facebook and whose Bing search engine collaborates with Yahoo.

A deal would nevertheless be complex. A reverse merger, where Yahoo shareholders would be issued Facebook stock, isn’t usually done on such a scale and would almost have to be agreed by Yahoo’s board. Facebook is valued at around $80 billion. It also has no experience of M&A generally.

But it does have a management team led by Chief Operating Officer Sheryl Sandberg, whom Yahoo shareholders would be delighted to put in charge. That alone should be sufficient incentive to at least study such a seemingly outlandish idea.

Comments

NO NO NO Yahoo just needs to go back their more simple ways..they are just so cluttered now..like the yahoo mind, needs to clear and start back to the beginning..I had Prodigy before Yahoo took them over..I liked the unclutter , less ads version..I do not like AOL for that..to much ads, popups, and being deverded to where you don’t want to be.

Posted by smilieface | Report as abusive
 

Facebook can’t handle Yahoo. They can’t really handle themselves. They threw me out of Facebook since someone said that I was a phony. Facebook couldn’t prove it and I sent them proof that they saw fit to ignore. Instead they informed me that their decision was not reviewable. This proves to me that they are incompitant. Yahoo is fine, don’t let Facebook ruin it.

Posted by seendee | Report as abusive
 

Why put a healthy head into a sick bed?
Facebook does one thing amazingly well. It’s the biggest time-waster on the Internet. To Facebook is a verb. The view that it should somehow merge with the blob of jelly that is Yahoo is silly. It may be good for Yahoo shareholders, but not for Facebook. Maybe they should merge with MySpace or other failures of the past? This is a lunatic idea.

Posted by DSarna | Report as abusive
 

Facebook needs a merger right now! if they go IPO they’ll more than likely fail because of the services on Google’s end — almost endless, and the money from mobile providers to overtake the market with there android. and advertising the Google+ applications…

Trust me, Facebook and Yahoo is the most realistic acquisition in years, never have I’ve seen such a better time to acquire a Major Search engine provider like YAHOO!

Mark my words, the acquiring of yahoo by Facebook, or some-sort of merger would also FIX this economy… a campaign will far surpass Microsoft and Google! in one shot :)

Yahoo is web 2.0 and beta 3.0 Google, myspace, Facebook are all standalone, and all those other sites offer no comparison to yahoo. if Facebook wants to survive by the end of this 4th Quarter. acquire or partnership up with yahoo!

end of conversation.

Posted by dialntone | Report as abusive
 

Facebook IPO was a failure before it even started. I give them five more years as a viable company. They’ll end up like myspace too.

Posted by weazelb | Report as abusive
 

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