Sunday, November 8, 2009, 7:27AM ET - U.S. Markets Closed.

YHOO Rallies on False Hopes? Don't Assume MSFT Deal or Big GOOG Payday

Posted May 06, 2008 01:00pm EDT by Aaron Task in Investing, Internet, Venture Capital, M and A, IPOs

With Yahoo under pressure from major shareholders and senior management backpedaling, maybe a deal with Microsoft isn't dead after all.

At least, that's how many traders are seeing things: Yahoo shares closed well off their session lows Monday and are rallying Tuesday, while Microsoft stock struggles to get above $30.

But those betting Microsoft will come back to the table soon are assuming Steve Ballmer's "bye-bye" letter Saturday was a negotiating tactic vs. a true change of heart.

Yahoo's PR team is trying to paint Ballmer as having "suddenly" changed his mind about the Yahoo bid. But as Henry Blodget writes, the truth is his position evolved over the three months when Yahoo seemed to indicate it would prefer any alternative to a deal and Microsoft's own employees and shareholders expressed major reservations.

Meanwhile, one of Yahoo's best "alternatives" was the outsourcing deal with Google, which Citigroup's Mark Mahaney estimates could generate as much as $1 billion of additional cash flow to Yahoo annually.

Mahaney's $1 billion target has been widely quoted but Sue Decker says Yahoo isn't giving up on search or display, suggesting a more limited outsourcing agreement -- and, therefore, considerably less than a $1 billion bump for Tech Ticker's parent.

In other words, Yahoo bulls may be in for a rude awakening on two fronts.

33 Comments

sushil c
sushil c - Tuesday May 06, 2008 12:38PM EDT

I love the openness with which Henry and Aaron are reporting the actual facts and in a way reflect the sentiments of Yahoo employees! must watch!

Ernie c
Ernie c - Tuesday May 06, 2008 12:47PM EDT

buy aci now .it will go on up this year.

dijur
dijur - Tuesday May 06, 2008 12:55PM EDT

I wish those talking heads had some minimum level of intellegence. Microsoft is aHIGH IQ company. Ballmer is a sharp intellegent individual and he dealt with Yahoo in a sincer honest way all along.

Ron
Ron - Tuesday May 06, 2008 01:02PM EDT

Forget tech! Buy infrastructure ABB NOW!!!

you
Yahoo! Finance User - Tuesday May 06, 2008 01:30PM EDT

Yahoo worth only $18/share

Joseph
Joseph - Tuesday May 06, 2008 01:36PM EDT

If I was a share holder in Microsoft, I'd be raising hell with Steve Ballamer. Why? I wouldn't pay that price for Yahoo! to begin with. I personally think that Yahoo! is overvalued as it is. If you compare it to the average PE ratios, it should be half of what it's been at. Even then, I don't see this as a great oppurtunity. I think this whole thing is a pissing contest to spite Google or try to get Google to come to Microsoft through the technological web that exists. If the management predicitons from Yahoo! come to fruition, great. They need to focus on that to build the bussiness instead of getting bought out. Now, if Ballamer is that serious (and questionable in reasoning on this), let the stock fall to nothing and then go hostile. Why pay $30 or more a share when it's over inflated, and bound to fall from this? If there is something viable in all this, let the price drop and buy it on the cheap-quietly.

Joseph
Joseph - Tuesday May 06, 2008 01:37PM EDT

If I was a share holder in Microsoft, I'd be raising hell with Steve Ballamer. Why? I wouldn't pay that price for Yahoo! to begin with. I personally think that Yahoo! is overvalued as it is. If you compare it to the average PE ratios, it should be half of what it's been at. Even then, I don't see this as a great oppurtunity. I think this whole thing is a stupid contest to spite Google or try to get Google to come to Microsoft through the technological web that exists. If the management predicitons from Yahoo! come to fruition, great. They need to focus on that to build the bussiness instead of getting bought out. Now, if Ballamer is that serious (and questionable in reasoning on this), let the stock fall to nothing and then go hostile. Why pay $30 or more a share when it's over inflated, and bound to fall from this? If there is something viable in all this, let the price drop and buy it on the cheap-quietly.

abc
abc - Tuesday May 06, 2008 01:42PM EDT

If MSFT doesn't come out and continue to pursue its bid for Yahoo then I wonder how far YHOO shares will fall, after all, they've risen so much based on this takeover offer. I think that I will buy some YHOO put options.

TH
TH - Tuesday May 06, 2008 01:49PM EDT

If I waned to own Yahoo I would have bought shares. I do not want to be in advertising, on line banking, any of that stuff. I like technology, period,. I want to stay with Microsoft but will sell if they get tempted by whomever is pushing Yahoo for THEIR profit.

Sanjay
Sanjay - Tuesday May 06, 2008 01:54PM EDT

MSFT could have bought YHOO for $18 a share in the open market 3 months ago. That's what the deal is worth, no more no less. Steve Ballmer can write a check for the excess funds to the shareholders who have been patient with MSFT over the last 5-7 years where the stock ahas done nothing.

__A_YAHOO_USER__
__A_YAHOO_USER__ - Tuesday May 06, 2008 01:54PM EDT

People don't understand that Yahoo is right behind Google, & of course it's worth more than that, MSN search is way at the button & where only hope is Yahoo, they can't afford the #1 which is Google. Without this deal MSN search is Dead. This 2 idiots are just mad cause the stock if going up again. I got my some shares yesterday & i hope it goes down even more cause i have use MSN search & i know it's dead already, search is all about yahoo & google right now

RC
RC - Tuesday May 06, 2008 01:55PM EDT

Get some new management in Yahoo -- that stock should be worth 10x it is now considering that Goog is worth $500 plus....

Friendlyfreddy
Friendlyfreddy - Tuesday May 06, 2008 01:55PM EDT

Every time I watch these Tech Ticker talking heads it just reinforces Yahoo's weakness in content. These two guys will take five minutes to say what could be easily be covered in two minutes. If this is an example of what Microsoft would have purchased with Yahoo, then they made the right move by walking away.

michael s
michael s - Tuesday May 06, 2008 02:08PM EDT

dont EVER trust what Henry Blodgett says Period!

David T
David T - Tuesday May 06, 2008 02:11PM EDT

Yahoo is right behind Google? Not a chance!

Ben
Ben - Tuesday May 06, 2008 02:26PM EDT

I agree with Michael S. Blodget is a moron. He drank the Kool Aid during Web 1.0 and now is trying to be relevant again. If he was a real player, he would have built a web company rather than trying to sound smart commenting on others.

Ben
Ben - Tuesday May 06, 2008 02:26PM EDT

I agree with Michael S. Blodget is a moron. He drank the Kool Aid during Web 1.0 and now is trying to be relevant again. If he was a real player, he would have built a web company rather than trying to sound smart commenting on others.

Ben
Ben - Tuesday May 06, 2008 02:26PM EDT

I agree with Michael S. Blodget is a moron. He drank the Kool Aid during Web 1.0 and now is trying to be relevant again. If he was a real player, he would have built a web company rather than trying to sound smart commenting on others.

R A Bottens
R A Bottens - Tuesday May 06, 2008 02:31PM EDT

Wasn't it Blodgett that said Bear Stearns wasn't in any kind of trouble and the next day they sank like the Titanic. If anything take the advice they give and do the opposite.

Kareem
Kareem - Tuesday May 06, 2008 02:36PM EDT

AS THIS CONTINUES, IT JUST STRENGTHENS AN ALREADY STRONG GOOGLE. LOOK FOR GOOG TO HIT 650 IN THE NEXT 30 DAYS......

Yahoo! reserves the right to refuse, or remove any comment that does not comply with the Yahoo! Terms of Service. The submission of spam, hateful, or obscene messages may result in the termination of your Yahoo! ID.
About Tech Ticker - Send FeedbackDisclaimer. Copyright © 2007 Yahoo! Inc. All rights reserved.
Copyright/IP Policy - Terms of Service - Privacy Policy - Help
Quotes delayed, except where indicated otherwise. Delay times are 15 mins for NASDAQ, NYSE and Amex. See also delay times for other exchanges.

Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes for NASDAQ, NYSE and Amex. See also delay times for other exchanges. Real-Time continuous streaming quotes are available through our premium service. You may turn streaming quotes on or off. Fundamental company data provided by Capital IQ. Financials data provided by Edgar Online. Historical chart data and daily updates provided by Commodity Systems, Inc. (CSI). International historical chart data, daily updates, fund summary, fund performance, dividend data and Morningstar Index data provided by Morningstar, Inc. Analyst estimates data provided by Thomson Financial Network. All data provided by Thomson Financial Network is based solely upon research information provided by third party analysts. Yahoo! has not reviewed, and in no way endorses the validity of such data. Yahoo! and ThomsonFN shall not be liable for any actions taken in reliance thereon. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.