Will Yahoo Get a Second Chance?

We recently wrote about Yahoo’s (NASDAQ: YHOO) troubled stock price and questioned some of their business decisions. Now Google (NASDAQ: GOOG) has walked away from a plan to show its ads on Yahoo’s search pages. This would have meant more revenue for Yahoo and would have been a needed shot in the arm for the ailing internet company.

Yet even though the deal has fallen through, Yahoo’s stock price rose in Wednesday trading. The stock price is up because investors are hoping that Yahoo’s management will get a second chance to make the right choice. Microsoft (NASDAQ: MSFT) had offered about $47.5 billion or about $33 per share for Yahoo in May. Yahoo’s board of directors and CEO Jerry Yang thought they could do better without Microsoft, rebuffing several offers until Microsoft decided to walk away.

Since then, Yahoo’s stock price has tumbled and now stands at around $14. Investors are hoping that with few other options for Yahoo, Microsoft will return to save the day with a new offer. If Microsoft offers anything close to the original $33/ share, then they should have their heads examined. If Microsoft retains any interest in the company, it is hard to see any offer higher than the low twenties, perhaps $23/ share, but that’s just my own guess. In any case, Bloomberg is reporting that Microsoft would be most likely to wait until the New Year at the earliest to make a bid. Bloomberg reasons that Microsoft will want to wait and see the state of the economy as the new president takes office.

Until then, any increase in Yahoo stock would be based on speculation of a Microsoft deal, especially as the recession continues to choke advertising budgets and Yahoo’s revenues. With the overall market down by several percentage points on Wednesday as new jobless numbers were being bandied about this week, Yahoo is up solely on the basis of this hope.

One can only hope that should Microsoft return to the table, Yang and his directors would treat them with a little more hospitality this time. As far as Yahoo shareholders are concerned, with a new offer of say, $23 share, Yang’s arrogance would have cost them something like $14 billion dollars. Think about that as you watch him cash his severance bonus check if Microsoft comes back at all.

Disclosure: none