Microsoft (MSFT) has approached Yahoo! (YHOO) asking them to re-enter formal negotiations for a takeover, according to the New York Post. Yahoo! has an estimated $50 billion price tag. Sources told the Post that Microsoft is using Goldman Sachs to handle the potential deal.
If the deal were to go through, the search share of the two companies would increase to 27 percent. Google (GOOG) has about 65 percent of the search market now. Another huge benefit would be the increase in online ad revenue. The gap would decrease to only 13 percent if the companies merge.
Where it would really make a difference though would be in terms of visitors. With the hunger for quality content for ad placement, this could be a huge benefit to the companies. Nobody would have their scale.
The two companies also serve up different demographics so they could compliment one another with their content. Microsoft could also use music exclusive to Yahoo! to play on their Zune music player or Xbox game console.
While all of this would make sense and integration between the two probably wouldn't be too difficult, the underlying risk over the first years would be the health of the online ad market. With the ad industry in general be cyclical, it could make a huge impact if it were to slow down at the wrong time.
Nonetheless, the online ad industry should grow for years, even if the overall industry slows down. So while there is some risk, it's probably minimal.
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