Yahoo: Analysts Mull Next Steps

While today’s settlement between Yahoo (YHOO) and its tormentor in chief Carl Icahn would seem to bring the whole sorry spectacle to a close, there could be a few chapters of the story yet to unfold. Among other things, the Street still seems to be holding out some hope that the presence of three Icahn board seats (out of 11) will yet soften up the company to a potential sale to Microsoft (MSFT).

Youssef Squali, Internet analyst at Jefferies & Co., asserts that the agreement with Icahn means an imminent sale to Microsoft is unlikely. He says, however, that the chances of a deal eventually unfolding remain “high.” Squali also theorizes that the inclusion of former AOL CEO Jonathan Miller as part of the team choosing which of Icahn’s nominees land on the board “positions him as potentially the next Yahoo CEO in case a deal with MSFT is not reached and Yahoo fails to execute against its aggressive growth plans.”

George Askew, an analyst with Stifel Nicolaus, thinks the settlement suggests Icahn believes Yahoo is serious about taking incremental actions to boost shareholder value. Askew repeated his view that Yahoo could announce a plan to sells its Asian assets and use the proceeds to buy back shares as soon as tomorrow’s earnings announcement.

Benjamin Schachter, of UBS, says that the announcement “will enable more focus on operational execution, while still being open to possible transactions.”

Meanwhile, Cowen’s Jim Friedland this morning trimmed his 2009 EPS estimate on the company to 70 cents from 72 cents; the cut reflects “near-term softness in the display market due to the economic slowdown and long-term share losses in search.” Friedland thinks Microsoft could come back with a new bid later in the year if Yahoo’s business continues to deteriorate - and that the next offer is likely to be below $30 a share.