Yahoo Shares Take A Hit As Microsoft Exits
San Francisco – Yahoo Inc.’s shares significantly plunged Monday, the first day of trading after Microsoft’s decision over the weekend to abandon its three-month-old takeover bid for the company — but the punishment was not as severe as scores of analysts anticipated because investors suspect the rivals eventually will renew their mating dance.
“Microsoft boss Steve Ballmer formally withdrew the offer in a letter this weekend to Yahoo’s head, Jerry Yang.”
“The deal fell apart after the two sides could not agree on the sale price.”
Microsoft seems to have made a clean break with Yahoo after a weekend of tepid negotiations failed to bring the reluctant target closer to its suitor. In the after effects, Yahoo is taking a big hit in the market, Microsoft is considering other cards to play, and Google just cannot stop smiling.
To summarize: Yahoo CEO Jerry Yang was unyielding that the company was worth at least $35 to $37 per share. Microsoft suggested it might go a little higher than its original offer — but not much. Microsoft CEO Steve Ballmer was also just as unbending that Yahoo was not worth the premium.
The stock market on Monday, made their aftermath adjustment to the end of the Microsoft-Yahoo tale, which ended this weekend.
Yahoo that saw a steady rise in its stock price ever since Microsoft made its offer, surprisingly found its shares fell by 15% to $24.37, after dropping as low as $22.97 during the day on the news.
Despite the fact that Wall Street looked disappointed that Yahoo and Microsoft did not consummate their merger, at least Yahoo’s shares did not retreat to their $19.18 pre-acquisition-bid price.
“It was anticipated that the stock would be down significantly today. It is also not surprising the stock is up fairly considerably from where it was prior to the offer’s announcement,” said financial analyst Troy Mastin of William Blair & Co.
Microsoft CEO Steve Ballmer made a remark to Yahoo CEO Jerry Yang that Yahoo may soon “take steps that would make Yahoo undesirable as an acquisition for Microsoft” boosted speculation that Yahoo’s next move will be a partnership with Google.
“We look upon with particular concern your obvious planning to act in response to a ‘hostile’ bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo today,” wrote Ballmer, who said such an arrangement would dilute Yahoo’s value.
A move may well be the agreement that Yahoo is supposedly trying to cut to outsource part of its search advertising business to Google. That would significantly boost Yahoo’s revenue and cash flow, Mastin said.
However, presently it is difficult to envisage if an outsourcing deal with Google would be a wise move in the long term, because it would give Google more power in search advertising, a market it dominates. Moreover, the Google deal puts Yahoo in a tricky position, having to balance the short-term interests of its shareholders with long-term considerations, Mastin said.
The Google pact may possibly give Yahoo the boost it needs to push its share price to $33 or higher, said Mastin, who rates Yahoo’s stock as “market perform,” meaning he expects it to perform approximately in line with the broader market over the next 12 months.
Many analysts think working with Google could be a mixed bag for Yahoo. Although Google may well improve Yahoo’s revenue somewhere from $850 million to $1.6 billion annually, it might also hurt Yahoo by undercutting the appeal of its own ad platform.
An alliance between Google and Yahoo furthermore would cause regulatory headaches because antitrust officials would to take a hard look at the partnership because the companies combined control more than 80 percent of the Internet’s search advertising market.
While Microsoft has openly pointed out that it will concentrate on measures besides buying Yahoo in its effort to make its Internet division profitable, several analysts predicted the software maker will revive its offer in the summer or fall if Yahoo can’t snap out of a two-year funk that exposed it to an unwanted takeover in the first place.
“Should the frustration of [Yahoo] shareholders come to a boil, we believe [Microsoft] could re-enter the picture, essentially playing the role of the white knight,” analyst David Hilal of Friedman, Billings, Ramsey & Co. wrote in a Monday research note.
With similar opinions deeply echoing through the stock market, Yahoo shares shed $4.30, or 15 percent, to close Monday at $24.37. That wiped out nearly half the gain they made after Microsoft made its bid Jan. 31. The drop left the Sunnyvale-based company’s market value about $12.5 billion below Microsoft’s last offer.
Venture capitalist Todd Dagres of Spark Capital likened this approach to that of a crocodile.
“Instead of try to consume its prey whilst it is warm and tough, Microsoft is dragging it down to the bottom of the river, sticking it under a rock and eating it later when it is cold and soft,” he said.
As for Microsoft that witnessed its stock remain almost flat, dropping 0.55 percent to $29.08, while Google’s stock rose 2.34 percent to $594.90.
Unquestionably, both Microsoft and Yahoo have all but crowned Google as the industry titan to beat with their public posturing. All Google needs to do is sit back, relax and enjoy the attention, Matt Eventoff, president of PPS Associates, said. A company promoting itself as a titan is one thing. “To have your competitors do it for you — well, even Google could not pay for that kind of marketing."
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