NEW YORK (Dow Jones)–Yahoo Inc. (YHOO) shares plunged 21% in premarket trading
Monday, removing about $8.7 billion in market value, as Wall Street resets the
Internet company’s worth after Microsoft Corp. (MSFT) withdrew its acquisition
offer the weekend.
Yahoo’s recent price of $22.60 is nearly 32% below Microsoft’s offer price of $33
a share - which the Sunnyvale, Calif., company considered inadequate - but above
Yahoo’s stock price of $19.18 when Microsoft’s offer was made public Feb. 1.
The premium from three months ago reflects the higher stock market as well as the
possibility of certain stock catalysts, such as an advertising outsourcing deal
with Google Inc. (GOOG), a merger with Time Warner Inc.’s (TWX) AOL unit, or
Microsoft and Yahoo returning to the negotiating table.
“In the near-term, we believe much of Yahoo!’s energy will be focused on proving
to its shareholders and other constituents that it made the right decision
rejecting Microsoft’s latest bid (we don’t think they did),” UBS analyst Heather
Bellini wrote Monday.
“In addition to dealing with potential shareholder lawsuits, we expect a flurry
of activity from Yahoo! focused on providing stability and catalysts to the
company’s share price, following what we expect will be a significant drop
(perhaps as much as $6-9) today.”
Microsoft withdrew its offer for Yahoo on Saturday after the two sides couldn’t
agree on a sale price, as Microsoft refused to offer more than $33 a share, while
Yahoo wanted at least $37 a share.
Monday, Microsoft shares rose 4.3% to $30.50 as many analysts said the Redmond,
Wash., software giant was prudent in not raising its offer further.
Citigroup analyst Brent Thill noted three reasons for investors to be relieved -
integration would have been a considerable distraction; the company showed price
discipline, which sets a strong precedent for future mergers; and the deal would
have likely been dilutive near term and the company can now use part of the $48
billion for other purposes.
He also, though, noted the downside, which is Microsoft remains third in search
and has limited ad inventory.
“While some have questioned whether MSFT should even be in the Internet business
given it is out of its core competency, we believe it is essential that MSFT
fixes its online strategy as the future is shifting towards cloud computing,”
Thill wrote.
Google shares, meanwhile, are gaining 3.3% premarket to $600.82 as the Internet
giant is seen benefitting from the disarray of its two largest competitors.
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