Bank of America analysts Brian Pitz and Brian Fitzgerald last night cut their rating on Yahoo (YHOO) to Neutral from Buy, describing Microsoft’s (MSFT) $31 a share bid for the company as “a generous offer.” They raised their price target on the stock from $26 to $31, matching the bid price.
“YHOO, in our opinion, has been a turnaround story with the company struggling to halt search share losses to Google (GOOG) and reinvigorate its slowing display ad business through off-network advertising initiatives,” they wrote. “Given the significant (62%) premium above the 1/31/08 stock price we believe shareholders would be apt to take advantage of this offer.”
They add, however, “a rival bid from a private equity consortium is also possible.” And the Bank of America analysts also note that the company could boost search revenue by 30% by outsourcing to Google. They also point out that the company has a net cash position, including its stakes in Yahoo Japan, Alibaba and Gmarket, of $15 billion, or $10 a share; $11 billion if you discount the stakes by 30% to take into account their illiquidity. Meanwhile, they contend that the deal could face regulatory hurdles in the U.S. and “particularly in the EU,” which could delay the closing of a deal.
Finally, they say the deal is a short-term positive for Google, since it creates a distraction for their two biggest rivals.
In pre-market trading, Yahoo is down 55 cents, or 1.9% to $28.78. Microsoft is down 24 cents to $29.95. Google is down $5.43 or 1.1% to $490.
