Microsoft offers Yahoo! best chance of catching Google

LONDON - Microsoft has been tipped to succeed in its attempt to buy Yahoo! because it offers Yahoo!'s shareholders a better chance than AOL and News Corporation of closing the gap on Google.

Yahoo! is believed to be in talks with AOL, the US internet company owned by Time Warner, as well as Rupert Murdoch's News Corporation, in an effort to repel Microsoft's unwelcome $44.6bn (£23bn) bid.

However, Canaccord Adams, a leading financial analyst on Wall Street which is advising investors to buy Yahoo! shares, said only a deal with Microsoft would give Yahoo! a chance to close the gap on Google in search.

Canaccord Adams's Colin Gillis said: "All this talk about Yahoo! combining with AOL or News Corp is just noise. You're not curing any weaknesses. Shareholders would have a hard time loving a combination like that.''

Microsoft would more than double its share of internet searches in buying Yahoo!, and save as much as $1bn a year by reducing overlap in their operations.

Yahoo! chief executive Jerry Yang has resisted Microsoft's advances, choosing instead to pursue other partners such as AOL and News Corp to keep his company independent.

London-based stock analyst Faber is also advising investors to buy Yahoo! shares: "Time Warner may have the desire, but as far as Yahoo! shareholders are concerned, it is not the best option. The synergies from combining AOL and Yahoo! wouldn't be anywhere near as large as combining Microsoft and Yahoo!.''

Both AOL and News Corp's MySpace have partnerships with Google, which would raise concerns with antitrust regulators in the US.

However, a combination with Microsoft probably would not because Google would still dominate the search market.

Meanwhile, according to a report in the Wall Street Journal, Yahoo's Chinese partner, Alibaba Group, may try to block Microsoft's takeover of Yahoo!

Even if Alibaba does attempt to block the move, it does not have sufficient influence to kill the takeover; however, it could force Microsoft to hand over more cash.

The group, which is 39% owned by Yahoo!, is concerned that foreign control of a large company in China such as itself could become a politically sensitive issue inside the country.