Yahoo a Microsoft Takeover Target (Again), Stock Up on News

Authored by Scott Goldberg on September 4, 2007 - 4:50am.

Bear Stearns & Co. called Yahoo a “Top Pick” with speculation that takeover discussions between the most-visited US website and Microsoft are heating up. As of mid-day on Wall Street, Yahoo shares were up 5% on the news, based on analyst Robert Peck’s view that Microsoft would buy Yahoo for $40 a share, 76% above the company’s August 31 closing.

“Yahoo remains an attractive acquisition candidate for either traditional media companies seeking to deepen their exposure to the internet or from technology companies like Microsoft,” Peck wrote.

On the year, Yahoo has been down 11% compared to the S&P 500 Information Technology Index which has been up 11%.

But the rumors of a Microsoft takeover are old news. Wall Street appears to be following Peck’s advice today, even though the analyst did cite a June 20th report that News Corp contemplated a 25% stake in Yahoo. Nothing more than unsubstantiated rumors have come from that report.

Yahoo continues its overhaul period, mandated by co-Founder and CEO Jerry Yang, who supplanted former CEO Terry Semel in June.

Peck appeared on CNBC later in the day, and seemed to downplay the Microsoft-Yahoo takeover rumors. His enthusiasm for the company's future, however, remained upbeat:

“We came out in mid-July and said, ‘Watch out for the 2Q earnings.’ We thought maybe that would be a good time for the company to reset the bar and really take down some of the street estimates. Since then the stock has come down a lot and gotten to an attractive risk-reward. We compare (Yahoo) to traditional media names, we don’t even compare it to internet names, and it’s trading around 0.7x to growth to traditional media companies. It’s giving you a generous Free Cash Flow yield – around 5% or so. We think the investor pendulum between greed and fear has really shifted more toward the fear side, creating opportunity.”

He then added, “You’ve gotten stabilization of their core businesses just as their newer businesses are starting to take off.”

Scott Goldberg