Is Yahoo worth $40 a share? How high should Microsoft go for Yahoo?

Feb.12, 2008 in Market Outlook

How high should Microsoft go for Yahoo?

Legg Mason’s Bill Miller values Yahoo ‘in range’ of $40 per share

By Dan Gallagher, MarketWatch

Last Update: 2:51 PM ET Feb 12, 2008

SAN FRANCISCO (MarketWatch) — Though Yahoo Inc. has formally rejected Microsoft
Corp.’s unsolicited buyout offer, many expect the Web portal to eventually fall
into the clutches of the software giant — at a higher price.

How much Microsoft (MSFT) can — and should — pay to land its prey is another
question, given that the $40-billion-plus deal is already the largest proposed
high-tech merger ever and could drain even the deep cash reserves of the Redmond,
Wash.-based monolith.

Several Wall Street analysts are predicting that Yahoo (YHOO) will eventually be
gobbled up by Microsoft — despite the former’s resistance to the deal so far.

Some large Yahoo shareholders believe the same. In a letter to clients Tuesday,
well-known mutual fund manager Bill Miller of Legg Mason — which is Yahoo’s
second-largest shareholder — said the merger is likely but that Microsoft will
have to “enhance its offer” to close the deal.

Yahoo formally rejected the offer on Monday, saying the deal price of $31 per
share “significantly undervalues” its business. The company is reportedly
evaluating other potential options — including a search-outsourcing deal with
Google (GOOG) — but no other bidders have emerged, and few would have the
financial resources to compete against Microsoft in a bidding war.

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