[Posted on May 5, 2008 - 5:43 PM]
E-mail
del.icio.us
Technorati
DiggIn rejecting Microsoft Corp.'s [MSFT] $47.5 billion acquisition offer, Yahoo! Inc. [YHOO] co-founder and CEO Jerry Yang laid out why he believes the Internet company is worth $53 billion. For now, the market believes it is worth considerably less.
Yahoo! shares closed at $24.37, down 15%, on Monday after trading as low as $22.97 early in the session. Yet while the losses were steep, the stock remained above $19.18, Yahoo!'s closing price on Jan. 31, the day before Microsoft went public with a $31 a share or $44.6 billion offer.
Yahoo!'s shares rose 7% on May 2 on speculation that companies were nearing a deal. But those hopes fizzled on Saturday when Microsoft withdrew its acquisition offer after Yahoo! rejected the software giant's $33 per share bid. Speculation that Microsoft's move to abandon the deal is a negotiating ploy and that it intends to eventually resume efforts to buy Yahoo! appeared to buttress the latter's stock. But analysts are divided over whether the two sides are likely to restart deal talks.
"At this point, as a Yahoo! shareholder you can't assume Microsoft will come back and Yahoo! will accept a deal," says Clay Moran, an analyst with Stanford Group Co. "If you're betting, the cautious way to go is that there is no deal now or in the future. You have to move forward with Yahoo! remaining a stand-alone, independent company."
By contrast, Friedman Billings Ramsey & Co. analyst David Hilal says in a research note on Monday that he is "not convinced that Microsoft is going away for good," adding that the company's move to abandon the offer is likely a "negotiating tactic" aimed at spurring Yahoo! shareholders to pressure Yahoo! management to accept a deal.
Perhaps the quickest way for Yahoo! to shore up its stock price is to outsource its search advertising business to rival Google Inc. [GOOG] The companies conducted a two-week trial in April, and they have discussed making the arrangement permanent, subject to regulators clearing it. Moran calculates that if Yahoo! outsources all of its domestic search business to Google, Yahoo! could add $1 billion in cash flow to its business, valuing the Internet portal at $32 a share, within spitting distance of Microsoft's final offer.
"It's not $33 or $37 [per share], but all you need is an improvement in the economy and an improvement in the stock market and you can get to that range," Moran says. -- David Shabelman
