Asia interest may up Microsoft's bid for Yahoo

Yahoo's success over Google in key Asian markets likely to be key in Microsoft's takeover thought process.

Microsoft may have an even bigger reason for upping its bid for Yahoo; the internet company's tremendous success in Asia.

Yahoo's strength in China, Japan and South Korea, especially compared to the relatively weaker market share of Google, would provide Microsoft with a key route to the market in these three important and growing regions, assuming it ever manages to complete its takeover attempt.

An early investor in Asia, Yahoo made investments in three of the companies that now dominate the web in these countries. Today, Yahoo's holdings in the Korean auction site GMarket and the Chinese e-commerce holding company Alibaba Group (the company that runs Yahoo's Chinese operation), as well as Yahoo Japan, may provide the additional value needed to underpin an improved bid from Microsoft, according to the Wall Street Journal.

The value of these holdings, estimated at between $9 billion (4.5 billion) and $14 billion (7 billion) could potentially increase the value of Microsoft's offer of $31 (15.50) a share by $3 (1.50) or more a share.

Although Yahoo promptly rejected Microsoft's unsolicited part-cash, part-stock offer, the company hinted that a higher bid might meet a better fate.

Yahoo rejected the original bid on the grounds that it undervalued the internet company's worth. Microsoft need only look east to see one of Yahoo's seemingly overlooked assets that could motivate the company to up its offer.

Just months before the initial bid was made, several Microsoft executives took a trip through China, Japan and South Korea in December to assess the internet markets in those countries. They determined that the key to any future success in this market is to partner with the local top internet companies that have already beaten the competition (most importantly, Google).

Yahoo has certainly done that in Japan, where it has 42.5 million users, compared to Google's 21.6 million. Microsoft's MSN site ranks eighth in this same market, so an acquisition of Yahoo could provide just the type of connection Microsoft is looking to obtain.

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