Research Roundup: Yahoo’s Rejection of Microsoft Offer
Reaction to Yahoo!’s rejection of Microsoft’s $31-a-share offer has been swift and mostly savage.
Saying You blew it, Yahoo!, The Motley Fool sees the move as “the end of Yahoo! as we know it.”
Microsoft’s extended hand was cold and clammy, but at least it was an exit strategy.
“Yahoo! may think the bid was too low, that Microsoft will bid higher, or that Google will save the day, but it’s naive on the first two counts and nearsighted on the last one,” TMF’s Rick Aristotle Munarriz writes.
Paul Kedrosky of Infectious Greed still expects a sweetened counter-offer from Microsoft, “but I just don’t see how thing doesn’t head speedily to a combined company conclusion.”
Henry Blodget writes on Silicon Alley Insider: “Sorry, But $31 Does Not “Massively Undervalue” Yahoo… And not only because no one else is willing to step up and pay even $31.
Because even Yahoo’s expert advisors can’t come up with compelling logic to support the idea.
He quotes RBC’s Jordan Rohan as valuing Yahoo! at around $24 a share.
“Jordan, by the way, thinks that the stock’s going higher because Microsoft will raise its bid–but not because Yahoo is “massively undervalued.”
Blodget also refers to today’s New York Post, which quotes Microsoft sources dismissing Yah00’s $40 counteroffer as “absurdly high,” but also allowing that Steve Ballmer is willing to go higher than the $31 that is already on the table.
Based on Yahoo’s $40 counter and Microsoft’s previous willingness to pay $35, both sides appear to be converging on a sale price of $35-$36.
Today’s New York Times says Microsoft’s statement suggests that, “at least for now, the company is not willing to raise its price.” Microsoft also indicated anew that it was ready for a fight, repeating earlier statements that it might consider “all necessary steps” to ensure the deal is completed.
According to 24/7 Wall Street’s Doug McIntyre “No one will pay twice what Yahoo! traded for last month. If the management could have gotten the shares above even $30 for a period of time, they would have. All they have proved is that it can’t be done.”
Canaccord/Adams “believes that Microsoft will likely be successful in its bid for Yahoo, but at a higher purchase price than the $31.00 offer that the Yahoo! board rejected.
Microsoft would in our view be willing to pay close to $40.00 per share in order to consummate the transaction on friendly terms with Yahoo.
Canaccord today reaffirmed its Buy rating on Yahoo! with a price target of $35.
Prior to Yahoo!’s rejection of the Microsoft offer ThinkEquity Partners urged Yahoo! to accept the deal, noting that spurning the offer could accelerate the already rapid pace of key employee departures:
Memo to Yahoo! management—Do not look back.
Think Equity said it was “raising our price target on YHOO shares from $25 to $31 and lowering our rating from Buy to Accumulate.”
Citigroup last week raised its Price Target to $31 from $22 to reflect MSFT’s $31 per share bid, “which we believe has a reasonable possibility of being the final outcome.”
And Merrill Lynch advised Yahoo to Beware of Competitors offering deals:
We think it would be wise for Yahoo! to use this potential partnership offer as leverage for a higher offer from Microsoft.
Likewise, Bear Stearns believes the offer could be increased:
This was an unsolicited first bid; final consideration could be higher. While there could be other bidders, in some recent M&A transactions, the original bidder has come back and bid more because of the strategic value.
Legg Mason stock guru Bill Miller thinks the “deal is a strategic imperative for MSFT, and that YHOO is in a tough spot if it wishes to remain independent.” The firm values YHOO in the $40 range and thinks MSFT will need to enhance its offer if it wants to complete a deal. Miller’s comment’s carry extra weight: with almost 9% of the stock, Legg Mason is Yahoo’s second-largest institutional shareholder, behind Capital Research.
YHOO is a uniquely valuable asset, and we expect MSFT will do what it takes to acquire it.
The full text of Yahoo’s letter of rejection is available here, and Microsoft’s response to the rejection can be found here.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
