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Yahoo shares hammered after weekend drama
Google shares gained $13.61, or 2.3 percent, to close at $594.90 Monday.
Time Warner Inc. also appears to be in a better negotiating position if it decides to sell its struggling AOL subsidiary, as many analysts anticipate.
Yahoo had been mulling a possible combination with AOL’s online operations as a defensive measure against Microsoft. Now, Microsoft may make a run at AOL if it’s interest in buying Yahoo is truly dead. And if Microsoft enters the picture, Google might offer to increase its 5 percent stake in AOL just to repel Microsoft.
A long list of Internet startups also could be in line for big windfalls if Microsoft and Yahoo step up their efforts to acquire more online weapons to challenge Google. And if Microsoft and Yahoo go shopping, Google has plenty of cash to get into bidding wars for potential takeover targets like Digg Inc., LinkedIn Corp. and Facebook Inc.
“Freed of one another, Yahoo and Microsoft are buyout prospectors: we would expect a rush-to-deal environment,” BMO Capital Markets analyst Leland Westerfield.
Most analysts believe Microsoft has to make some kind of bold move after its online division lost $745 million through the first nine months of the company’s fiscal year.
“Any notion of simply returning to the original, pre-Yahoo strategy is likely to be insufficiently defined and credible,” Bernstein Research analyst Charles Di Bona wrote in a Monday note.
In a mild surprise, Microsoft shares fell 16 cents to $29.08 Monday. Most analysts thought the stock would climb because investors had driven down the shares during the last three months on worries that a Yahoo takeover would turn into an expensive mess.
If he wants to hold on to the CEO job he took on 11 months ago, Yang probably will have to show his turnaround strategy is compelling enough to propel Yahoo’s stock beyond $33 per share within the next year.
Yang has promised a more sophisticated and far-flung ad network will accelerate Yahoo’s net revenue growth by at least 25 percent in 2009 and 2010, up from the recent pace of 12 percent increase.
“The company is doing better than three months ago,” Yang said Monday. “I think in many ways this has been good for us. We still have a lot of work to do to demonstrate that we can be successful, and I am focused on that.”
But Yang’s credibility has been undermined by Yahoo’s repeated forecasts of better times ahead while the company’s profits steadily eroded during the past two years.
“We are not willing to give (Yahoo) the benefit of the doubt that they can make meaningful improvement over the next three years,” UBS analysts Benjamin Schachter, Heather Bellini and Abhey Lamba wrote in a joint research note.
If Yahoo stumbles, that could entice Microsoft to return with another takeover bid that would be more difficult to turn down.
Venture capitalist Todd Dagres of Spark Capital likened this approach to that of a crocodile.
“Rather than try to eat its prey while it’s 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’s cold and soft,” he said.
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