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Yahoo, AT&T Marriage In The Offing?

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Yahoo stocks plunged Friday after a Wall Street Journal article suggested that Yahoo and AT&T were breaking their Internet access partnership, a move that would, it was thought, dump $250 million from Yahoo’s revenue stream. Both companies issued a statement reaffirming their commitment to one another, renewing speculation about a potential merger.

Already struggling with disappointing share prices after acknowledging structural shortcomings, Yahoo saw its shares drop by five percent Friday. Also illustrating the power of the Journal over stocks, the multi-authored article also hit the publicly owned megacorporations where it hurts – in the wallet:

The companies are negotiating potentially sweeping changes that could scale back their partnership, which expires in April 2008… AT&T has quietly painted over its colorful vans, expunging the Yahoo logo; the vans now sport AT&T’s new blue insignia alone.

The fraying of the alliance could be a blow to Yahoo, which gets roughly $200 million to $250 million of revenue annually from AT&T… It also shows how AT&T itself is much stronger, and less reliant on Yahoo, than during the early days of their alliance.

YHOO share prices have about half recovered in Monday trading so far, up about 2.5 percent after the companies denied any such dissolution of ties. Yahoo and AT&T issued a joint statement, saying that the two companies were looking to expand their partnership, not prune it back.

In addition to continuing their current access provider relationship, they will be: working together to provide advertising for a co-branded mail service; expanding their partnership into the mobile market, through Cingular; and Yahoo services will be introduced into AT&T’s IPTV project due out later this year.

AT&T COO Randall Stephenson said his company considered the relationship "a great partnership" and one that would continue.

Yahoo CEO Terry Semel was a little more verbose: "Our landmark, strategic partnership set the standard and has given Yahoo! and AT&T the opportunity to create truly innovative offerings for consumers and advertisers. AT&T and Yahoo! have already made adjustments over the years to reflect competitive conditions and the relative benefits each party brings to the relationship. As we continue our conversations, we have a common goal to increase the economic benefits for both parties."

That common goal, according to WSJ blogger Dana Cimilluca, could climax with AT&T buying out Yahoo altogether. Cimilluca points to a place in the now controversial article stating that AT&T CEO Ed Whitacre approached Yahoo about a buyout after the company’s stock fell last autumn. And it’s not the first time the two have been in caught smooching:

One interesting nugget from today’s WSJ article was that in 2004, as Whitacre was doing a landscape-changing deal as head of SBC Communications — the purchase of AT&T Wireless — Yahoo and SBC were plotting another megadeal, acquiring Walt Disney.

What’s most interesting is how traders zeroed in on the part of the article focusing on a lost contract, rather than the speculation that the two companies may become one in the future. And if so, what happens when telcos start merging with Internet companies? What happens to competition and Net Neutrality then?

 

 

 

Yahoo, AT&T Marriage In The Offing?
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