BUSINESS BLOGS
BUSINESS BLOGS
category: business
02 Feb 2008

While a rumor crept up that private equity firms were mulling making a counter-offer of their own for Yahoo!, the prevailing wisdom is that MSFT’s already given a disincentive for any bankers to even consider it. Not because $44.6B is out of the question, but because MSFT has the balance sheet, income statement and inside lane to get it done whereas PE bankers cannot in any way guarantee matching the deal, let alone beating it.

Of course, that does not mean that Yahoo! will accept the $44.6B offer. In fact, usually the next steps are for Yahoo! to ask for a higher price (I do not think that the Board can really offer any standalone strategy to create a similar upside in a short time frame).

After all, the $31 per share price is lower than what Yahoo!’s stock was trading at a mere 3 months ago and far lower than its $40/share peak of the past 5 years. I am not sure that we’ll see a $40/share offer, but once Jerry Yang and David Filo see the writing on the wall and realize that shareholders will storm the Yahoo! campus and scalp them alive, then they might ultimately “settle” for something in the $50B market cap range which is both what MSFT was rumored to bid for Yahoo! in May 2007.

Yahoo! Finance gave YHOO a float of 1.25B shares and 1.34B shares outstanding, but the $44.6B offer backs out to 1.438B shares at the $31 price… so I used that initially (and that gave me a per share price of $34.75 to hit $50B).  That is wrong because while Yahoo! did recently hit that level, the market cap only stood at $40B.

Regardless, there is a risk that this deal won’t get done. Make sure you understand that as an investor or someone considering getting in at these levels, but with the deal looking more and more like a fait accompli, a final price tag in the $45-50B market cap seems plausible. After all, even Rupert Murdoch had to up the $5B offer to Dow Jones by ultimately shelling out $5.7B.

Note: I am long YHOO, this is not meant to be some form of investment advice, all securities pose considerable risk and buying YHOO now - or not selling it - remains highly speculative.