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Leader: Microsoft to buy Google? Joking aside…
Why that deal won’t be happening

By silicon.com

Published: Monday 03 November 2003

The end of last week, like the week before, was dominated by Google-related news. Only this time instead of the talk being about a mega-IPO re-igniting the tech market it was all about Microsoft approaching the leader in search.

Various media outlets over-reacted. Mainstream tabloids and websites started carrying ‘Microsoft to buy Google’ headlines. However, a close look at the article that started everyone else speculating – carried by silicon.com sister site CNET News.com here - shows the situation to be more complicated.

It seems Microsoft has engaged Google top brass in talks. Pretty much whoever you are, if Gates’ envoys come calling, you normally answer the door. And while Google may still be a private company, it’s VC backers – already eyeing a huge pay off in the near future if a $10-15bn IPO materialises next year – cannot be blamed for thinking of an even more lucrative exit. It’s what they’re paid to do.

Our money, however, is still on Google taking itself to Wall Street, rather than ending up there as a small part of the world’s largest software company.

At this stage, there are still doubts Google will even use one (or several) investment banks to go to market, considering a so-called Dutch auction to hive off its shares, possibly engaging many more small investors. The latter option would leave the big bankers unhappy – and quite possibly make a future takeover attempt harder.

Indeed, one of the best points last Friday’s article makes is that Microsoft can bide its time and make a bid once Google has gone public. It would be able to afford that, even if the price tag ends up at tens of billions of dollars.

Barriers would be in place though, even if the board of Google at that stage backed a deal, which would be far from a certainty. A dispersed base of shareholders would make approval harder, for one.

And then there’s the question of whether the world wants a Microsoft-owned Google. In today’s Devil’s Advocate column, Martin Brampton makes the point that owning Google isn’t just about owning the best and most commercially promising search engine. It’s about owning an opinion-influencing tool.

Some users would shy away, though for most, an accurate, simple search engine means more than who owns it.

Finally, any acquisition would give access to Google’s ‘special sauce’ – the algorithms that make the engine work so well – but no guarantee the best brains will stick around for the ride after the terms of any lock-ins. That’s a hell of a risk if you’re talking about spending wads of money in a market that is by no means on its feet again.

A Microsoft-Google merge makes for good headlines – but don’t expect it to happen for a second.