Rumours point to Microsoft acquisition of Yahoo

A Microsoft/Yahoo combination would allow Redmond to compete more effectively with Google

Microsoft has been looking at a possible acquisition of the Yahoo online portal and search engine, according to a report in The Wall Street Journal. 

Citing unnamed sources, the paper claims that a faction within Microsoft is lobbying to have the company purchase a stake in the search provider, but that such plans are "on hold".

Yahoo's current stock price values the company at roughly $45bn and Microsoft would have to pay a premium on this price for an acquisition to be approved.

Microsoft is known for its reluctance to make major acquisitions. The company is investing significantly in its MSN group and Live Software initiative, indicating that it is looking to grow its web business organically rather than through acquisitions.

A partnership between the two firms would also need support from Yahoo co-founder Jerry Yang, who would be instrumental in getting shareholders to agree to a deal.

A Microsoft/Yahoo combination would allow Redmond to compete more effectively with Google, which has succeeded in outpacing the competition despite Microsoft's recent investment focus on its online division.

Google is believed to be preparing products such as an online text editor that will intensify the competition with Microsoft's core applications such as Office.

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