Yahoo Shares Rise, But for How Long?

On a day the rest of the stock market was tanking, Yahoo Inc. (YHOO) shares rose more than 10% yesterday after Google Inc. (GOOG) abandoned their proposed advertising alliance. Investors may be gambling that Yahoo has no choice but to crawl back to Microsoft Corp. (MSFT) in hopes the software maker wants to rekindle a deal.

Even if Microsoft is still interested in buying Yahoo, there's no reason for it to offer a significant premium. Cowen and Co. LLC analyst Jim Friedland recently predicted Microsoft would be unlikely to offer more than $20 a share, or $29 billion, for Yahoo, while noting that Yahoo would probably demand at least $25 a share, or $36 billion. He valued a Microsoft deal to buy only Yahoo's search business at $19 to $20 a share.

Of course, that was before Yahoo's ad partnership with Google burst like an over-filled water balloon. Another factor that could seriously dent Yahoo shares: fear. Without the prospects of Google-generated revenue and cash flow, Yahoo CEO Jerry Yang might be desperate enough to pull the trigger on that long-rumored AOL deal. --Alain Sherter

See Nov. 5 post on Google withdrawing from an ad deal with Yahoo! from Tech Confidential
See Oct. 27 post about the value of a Microsoft-Yahoo! deal from Tech Confidential

Comments

[kris23:]

I'm unsure as to why YHOO share shot up after this news. Even if they do try to crawl back to MSFT, do we even know if MSFT wants them anymore? Sentiment is suprisingly becoming more bullish too (www.predictwallstreet....) even though YHOO is all alone now to fend for themselves. Doesn't make any sense.

2008 Nov 06 01:17 PM