Yahoo may consider Google alliance, source says

By Eric Auchard

SAN FRANCISCO (Reuters) - Yahoo Inc would consider a business alliance with Google Inc as one way to rebuff a $44.6 billion takeover proposal by Microsoft, a source familiar with Yahoo's strategy said on Sunday.

Yahoo management is considering revisiting talks it held with Google several months ago on an alliance as an alternative to Microsoft's bid, which, at $31 a share, Yahoo management believes undervalues the company, the source said.

A second source close to Yahoo said it had received a procession of preliminary contacts by media, technology, telephone and financial companies. But the source said they were unaware whether any alternative bid was in the offing.

Few natural bidders exist beside Google that could engage in a bidding war, and Google would be unlikely to win approval from antitrust regulators, some Wall Street analysts said on Friday.

Yahoo's efforts to find an alternative bidder could simply be a measure to pressure Microsoft to boost its bid, which valued Yahoo at $44.6 billion when first announced on Friday.

Sanford C. Bernstein analyst Jeffrey Lindsay wrote in a research note that "the Microsoft bid of $31 is very astute" because it puts pressure on Yahoo management to take actions that could unlock the underlying value of Yahoo assets, which he estimates are worth upward of $39-$45 a share.

Separately, Google Inc fired back on Sunday at Microsoft Corp's bid to acquire Yahoo Inc, accusing Microsoft of seeking to extend its computer software monopoly deeper into the Internet realm.

David Drummond, a Google senior vice president and its chief legal officer, said in a blog post that the combination of Microsoft and Yahoo could undermine competition on the Web and called on policy makers to challenge the combination.