Yahoo: Citi's Five Scenario Analysis

Citigroup’s Mark Mahaney Tuesday morning lays out five possible scenarios for how Microsoft’s (MSFT) bid for Yahoo (YHOO) plays out. Here are the possibilities he lists, along with his assessment of how likely they are to come to fruition:

• Scenario #1: Yahoo hits the $31 bid. 20% probability.
• Scenario #2: Yahoo rejects the bid; MSFT ups its offer; the deal happens. 40% chance. He considers this the most likely outcome.
• Scenario #3: Another bidder emerges and wins. 5% chance. “We believe that the $45 billion price tag and the strategic value of Yahoo to Microsoft make the likelihood of a successful competing bidder very low,” he writes.
• Scenario #4: Deal blocked by regulators. 10% chance. He notes that the combined companies are at most 30% of total U.S. online advertising, and less than that in Europe.
• Scenario #5: Yahoo/Google (GOOG) search outsourcing deal. 25% chance. “We believe the probability of this is greater than financial markets realize,” he writes. “If Yahoo’s board and management want to remain independent, shareholders will insist on a major value-creating strategy to balance the MSFT bid. This may be the only viable strategy, as it could deliver 25%-plus accretion to YHOO’s cash flow.”

Tuesday morning, Yahoo is down 18 cents to $29.15. Microsoft is off 52 cents, or 1.7%, to $29.67.

Comments

[Tom B:]

I like #4 and #5. I think 10% is REALLY pessimistic for #4.

2008 Feb 05 11:00 AM

[sunrises:]

Hi Eric:

Is there any possibility that Google may return to at least $540-550 share price anytime soon?

2008 Feb 05 11:52 AM