Yahoo-Microsoft battle bolsters Google

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"We find this to be a very advantageous situation for Google," Cantor Fitzgerald analyst Derek Brown said Thursday. "The longer this gets dragged out, the better for Google."

Yahoo signaled it is bracing for a protracted battle late Wednesday when an announcement and a media leak provided a glimpse at its labyrinthine search for alternatives to Microsoft's bid of more than $40 billion.

The options include an experimental advertising alliance with Google that could lead to a broader partnership and, according to published reports, a combination with the online operations of Time Warner Inc.'s AOL. Google also owns a 5 percent stake in AOL.

As part of the AOL deal, Time Warner would get a roughly 20 percent stake in the merged entity in return for a substantial sum of cash that would help Yahoo buy back some of its stock at a price well above Microsoft's offer, which was initially valued at $31 per share.

"This is the first time that we have seen real feasible alternatives that could derail the Microsoft deal," said analyst Jeffrey Lindsay of Sanford C. Bernstein & Co.

Other analysts doubt Yahoo will succeed in thwarting Microsoft but believe it could force the world's largest software maker to raise its offer as high as $35 per share, or about $50 billion.

For its part, Microsoft has indicated that it may lower its offer if Yahoo doesn't accept the current bid by April 26.

But Microsoft made that threat before the details about Yahoo's alternatives with Google and AOL emerged.

Although Microsoft has plenty of money to up the ante on its own, the Redmond, Wash.-based company may draw upon another deep pocket — Rupert Murdoch's News Corp.

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