Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX), News Corp’B’ (NWS)
Yahoo! (NASDAQ: YHOO) shares traded at $29.70 after hours Friday as it appeared that a buyout deal from Microsoft (NASDAQ: MSFT) was likely. Now that Microsoft has walked away after offering $33, where does the Yahoo! stock price go?
Probably to about $22. Here are the reasons why:
1. Yahoo! traded at $19 the week before the offer.
2. Yahoo!’s earnings for Q1 were only modest. So were its forecasts. No one on Wall Street believes the company’s aggressive three-year projections. This actually puts some downward pressure on the stock.
3. Microsoft might come back. Their new offer, probably several weeks off, if they make one, will almost certainly be below its initial $31 price point because Yahoo!’s shares will have fallen. A new MSFT offer will probably be in the $25 to $27 dollar range. This should give the stock some support.
4. Yahoo! could outsource some of its search functions to Google (NASDAQ: GOOG) and potentially save hundreds of million of dollars in personnel. Google does a superior job of making money from search ads, so a transaction with the search company could also improve revenue. This should help keep Yahoo!’s share price from collapsing. There is a chance the the federal government would view a deal between the two largest search companies as anti-competitive.
5. There is still a chance the Yahoo! could do a transaction with News Corp (NYSE: NWS) for MySpace or Time Warner (NYSE: TWX) for AOL. It is tough to handicap what this would do to the Yahoo! shares.
Look for the Yahoo stock to settle at $22 in the next week.
Douglas A. McIntyre is an editor at 247wallst.com.
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