Icahn to Whip Yahoo's Struggling Horse into Shape

Technology and Energy sectors made the biggest gains leading the Nasdaq (up 1.5%) and the S&P (up 1%) Thursday as the May Options expiration window winds to a close. Oil prices, still the brightest mark for the Energy sector stayed around $124, although they were unable to reach new peaks much past $126 a barrel.

It's an Oil price era in Stock and Futures trading right now and the commodity folks have been rejoicing the last couple of months virtually non-stop. Concerns over high oil resonate through many facets of the economy, with the biggest being the story of inflation. As high oil funnels itself through each and every sector of the consumer business, the increasing cost of manufacturing, transport and services will all have to be pushed onto the consumer, thus sparking increased inflation. Definitely an issue the Fed doesn't want to have to dive right into after, only months ago, it steered the US away from a full blown recession by dramatically cutting Interest Rates.

In other news, Carl Icahn (shareholder activist/corporate wheeler-dealer) took a large stake in Yahoo (YHOO) and is prepared to enter into a proxy battle with current management. It is clear that several large shareholders were unhappy with the way the whole Yahoo-Microsoft (MSFT) situation went, and that the pressure was applied in order to unseat the current board at Yahoo, which will be more open to a buyout. The $33/share offer from Microsoft was substantial, and was on the brink of completely overpaying for the struggling Yahoo Internet outfit.

On the one hand, the Internet is the future and Internet advertising is leading that future, but on the other, Yahoo is a struggling horse in the advertising game and can't seem to find any ways of putting together its huge customer base into meaningful and exciting new services. Carl Icahn thinks he can help though, and his track record for displacing management rings throughout Wall Street (see Motorola (MOT) for an example). Icahn is going to nominate his board members who will be more open to deal and hopefully will get shareholders a fair price above $30/share. With Yahoo currently trading under $28, there's a potential there for an easy profitable trade, if Icahn is able to do as he wants.

Getting Microsoft back to the table will not be easy, as Microsoft's own shareholders jumped ship sending the stock to drift lower as the weeks leading to the potential alliance dragged on and on, so it is clear the deal isn't the most favourable from within the Software Giant's rank and file. Microsoft however, is desperate for an Internet presence and it can't seem to find the functionality and scale of web software and web services on its own.

Windows Live is frankly unheard of in tech and user circles, Office Live, hasn't made any sort of dent and the Advertising division is losing money hand over fist as Google (GOOG) dominants Internet Search. Microsoft's biggest fear in this space has to be Google Apps (Google's free word processing, spreadsheet and presentation tools hosted on the web), and as such they have got to think that Yahoo's Internet service experience and scale will allow them to have viable online software tools when the game really changes.

Icahn will definitely use these points to re-open dialogue, and this along with Yahoo's profitable advertising initiatives should get Steve Ballmer talking again, which might at the end of the day reward those patient Yahoo shareholders.

Disclosure: Author owns GOOG, does not own MSFT, YHOO

Comments

[urstruly]

Once Microsoft acquires Yahoo, I will stop using my yahoo services and quickly shift to Google services. Never been a fan of Microsoft services and its image. I am very sure the same will apply to several other yahoo users.

Since when will investors realize that when Microsoft made the initial offer on yahoo, the internet ad market was down in the stock market and most technology companies were down. Google delivered in their earnings. Yahoo also delivered. if Microsoft hadn't made the stupid offer for yahoo, yahoo stock price would have jumped back up and investors wouldn't have boxed yahoo's stock within this stupid $31 ceiling.

Are investors saying that yahoo's stock price cannot be back to $33 in a year?

Yahoo has been beaten in search. That is fine. But yahoo has several other businesses which google lacks.

So icahn, please take ur greedy ass back to blockbuster.

[jackooo]

Icahn will rape Yahoo like he did TWA and split. Keep that in mind.

[sv_observer]

Now this is a true masterpiece of ignorance: " ... if Microsoft hadn't made the stupid offer for yahoo, yahoo stock price would have jumped back up" . The MSFT offer was at a 60% + premium of the price. And as many analysts noted at the time, Yahoo's Q1 results were respectable, not great. This comment is almost as stupid as Bostock and Decker whining that the $33 offer wasn't in writing. Or wait, maybe that wasn't dumb, maybe it was just disingenuous and self-serving.