Microsoft Corp. needs to do a deal – the question the software giant is currently contemplating is whether it should do one with Facebook or Yahoo!, The Post has learned.
According to two sources familiar with the discussions, Microsoft has restarted talks with Facebook about a potential investment that would give the social networking Web site its sought-after $10 billion valuation.
At the same time, both sources said that internally Microsoft has been debating for months whether it should go public with the takeover proposal it made for Yahoo! earlier this year in an attempt to prod shareholders to force management to the bargaining table.
“That was the plan when [Terry] Semel didn’t want to sell – to get Yahoo! shareholders all fired up after seeing the number Microsoft put on the table,” said one source who added, “It is still being considered.”
Both sources agree, however, that despite its $21 billion of cash on hand, Microsoft’s board doesn’t have the appetite to do three multibillion-dollar deals in one year. And after already having bought aQuantive for $6 billion, the decision comes down to either Facebook or Yahoo!, but not both.
Facebook competes with MySpace, which is owned by News Corp., parent company of The Post.
While Yahoo! is complementary to Microsoft, Facebook would provide entry into the fast-growing social network world that is a weak spot for the software giant. Facebook would also allow Microsoft to use its technology unencumbered, while Yahoo! would raise questions of whose technology to keep versus whose to jettison. Facebook is also more in line with Microsoft’s “partnering” method of business.
But, not unlike Yahoo!, Facebook has so far resisted any overtures to sell out. That’s why Microsoft is talking with the Web site about an infusion of $500 million cash in return for a 5 percent stake.
At that price, Facebook’s investors would be able to justify the $10 billion valuation they’ve put on the social networking site despite outside perception that such a number is seriously inflated.
Microsoft’s investment could have the same effect as Google’s $1 billion purchase of a 5 percent stake in AOL in 2005 had for Time Warner, giving AOL the $20 billion valuation its corporate parent wanted.
Sources cautioned, however, that the most recent round of talks between Microsoft and Facebook could fall apart, which is one reason why Microsoft hasn’t abandoned going public with its Yahoo! offer.
Still, one source said that Microsoft thinks the discussions are much further along than Facebook does, which speaks to the trouble Microsoft is having adapting to the new deal environment in Silicon Valley.
“They still expect people to come to them with deals first,” said one of the sources, “and they assume that deals are done before they are actually done.”
A spokewoman for Facebook declined to comment. A Microsoft spokesman did not return a call for comment.