Yahoo's Next CEO: Do the Microsoft DealBy Reuters | Posted 11-19-2008
Yahoo's Next CEO: Do the Microsoft Deal
That's because this remains Yahoo's best option, short of a dramatic turnaround plan, analysts said.
But if Microsoft does eventually buy Yahoo, shareholders should brace themselves for a price far lower than the $47.5 billion the software behemoth offered earlier this year.
Wall Street analysts estimate that Microsoft would not offer more than $17-$20 per share for Yahoo, whose stock has fallen below $12 from a high of $30.25 in February.
Online display advertising, a core Yahoo business, has also shrunk as corporate advertisers scale back on Web marketing promotions amid a global economic slump.
Under Chief Executive Jerry Yang, who on Monday agreed to step down from his role once the board finds a replacement, Yahoo searched for alternatives to being bought, exploring partnerships with Google and Time Warner's AOL unit.
But Google, which struck a search advertising deal with Yahoo in June only to abandon it as regulatory concerns grew, is unlikely to come back for more.
Meanwhile, Yahoo's months-long discussions with Time Warner about combining its AOL unit, have not led to a deal so far.
And Microsoft, for all its proclamations to the contrary, still needs Yahoo's assets to bolster its presence in online search and advertising, analysts said.
But the scales will be tipped in Microsoft's favor if and when the new Yahoo CEO does reach out to negotiate a new deal.
"It's not going to be Microsoft calling Yahoo saying, 'We're making a bid for $17 a share'," Needham & Co. analyst Mark May said.
"Microsoft is done negotiating with Yahoo. If Yahoo wants to do a deal, its board needs to have full agreement" on the price they want to sell the company for, May added.
"Only Potential Buyer"
Microsoft offered to buy Yahoo for $44.6 billion on January 31, which Yahoo rejected. It sweetened its cash-and-stock bid to $47.5 billion, but withdrew it after talks fell apart on price.
Microsoft later came back with a proposal to buy Yahoo's search assets, but Yahoo turned it down as well, choosing to team up with archrival Google instead.
Yahoo and Time Warner also began talking about a deal under which Yahoo would fold AOL's online content and advertising assets into its operations, with Time Warner taking a stake in the combined company, sources have said.
Despite advanced talks, a deal hasn't happened because of challenges to valuing the businesses given the weak advertising market and Yahoo's falling stock price, as well as concerns over integrating the platforms, the sources have said.
Analysts have been skeptical about such a deal because they don't believe it would dramatically improve Yahoo's earnings.
"Yahoo-AOL? What would that bring to the table? There's no point in having a marriage of convenience. It's not going to last," said Mukul Krishna, global digital media director at Frost & Sullivan, a research and consulting firm.
Krishna said Yahoo's shareholders are looking for something more tangible to offset the stock's losses.
Yahoo needs either a substantial turnaround plan, complete with cost-cutting and a "roadmap to profitability," or an acquisition by Microsoft to satisfy investors, Krishna said.
"Microsoft will be only too happy to restart the conversation, but it will be calling the shots," he said.
Activist investor Carl Icahn's presence on Yahoo's board may help bring Microsoft to the table, analysts said.
Icahn, a major Yahoo shareholder, has publicly reiterated hopes of a Yahoo-Microsoft deal several times. He did not return calls seeking comment.
Analysts said they expect Microsoft to eventually come back because it needs Yahoo nearly as much as Yahoo needs it.
"Microsoft wants Yahoo's search audience, the traffic, the clicks," Needham's May said. "They want to have as much as Google does. So it's important for Microsoft to have a big presence in search and display."
But Cowen & Co analyst Jim Friedland said Microsoft is unlikely to want to rush into talks with Yahoo even with a new CEO knocking on its door.
Both companies are seeing declines in their Web businesses due to the global economic downturn, and as Yahoo's "only potential buyer," Microsoft can take its time, he said.