Carl Icahn May Rekindle Yahoo-Microsoft Deal

by: FP Trading Desk May 18, 2008 | about stocks: MSFT / YHOO    

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Investor activist Carl Icahn's recent nomination of an alternative Board of Directors at Yahoo! Inc. (YHOO) may revive talks of a transaction with Microsoft Corp. (MSFT), according to Goldman Sachs analyst James Mitchell.

In his note titled "Yahoo! transaction back in the crosshairs as Icahn enters the fray," analyst James Mitchell said it may be the perfect time to rekindle Microsoft's interest in Yahoo! given Mr. Icahn's substantial track record in pushing through acquisitions, including Oracle's (ORCL) recent purchase of BEA Systems (BEAS). The fact that Yahoo!'s current board has had to issue a letter defending its handling of the take-over talks to frustrated shareholders also comes into play.

Mr. Mitchell said that Microsoft remains potentially interested in buying Yahoo!, noting "recent [Online Services Business] OSB results underscore Microsoft's need to do something more game-changing to create growth in this strategically important segment".

He also posed the hard question of how Microsoft responds to any approach, having expressed that it neither needs nor particularly desires Yahoo! He still sees substantial benefits in the merger, and points out that it is obviously in its interest to downplay talks of an acquisition even if it remains their ultimate goal.

As is, Mr. Mitchell values Yahoo! stock at C$23. But the analyst pegs that price at C$30 should Microsoft reiterate its C$33 bid and should Yahoo! accept it. The note read:

Allowing a 50% probability to each outcome, our 6-month target price is C$26 per share.

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This article has 3 comments:

  •  
    May 18 06:15 PM
    Well... One thing obvious is that Goldman obviously wants this deal even though no one else seems to. No matter WHAT the news has been, a Goldman analyst has found a way to spin that into proof that a "deal is inevitable"

    I, for one, am really hoping they are wrong. Yahoo is a dog and would mire MSFT down with integration challenges that would go on for years and cost a ton. In the meantime, the combined entity would still have no chance of catching Google. As a MSFT shareholder, this deal stinks.
    Reply | Link to Comment
  •  
    May 18 06:41 PM
    Look. Microsoft MUST enhance its online strength at any cost to target Google's core business...else Google will use most (if not all) of its search revenue to target Microsoft's core business (read MS Office and Windows). Yes Windows, for all u know, a Google OS might be in works. This is sheer business ppl and lets not forget one thing...Yahoo was internet and has been a household name for years now. The company has seen ups and downs and yes...it has been doing bad in the recent past. But hey, its confident of bouncing back. Yahoo doesn't need MS to target Google. PERIOD. Yahoo can fight MS and Google with its own operating style. So, in short, a MS-Yahoo deal WONT work just becoz therez a huge huge cultural gap b/w them. And last but not the least who the F*** is Carl Ichan? He shud be treated a lesson and looks like thats where this whole thing is headed. He'll end up losing a LOT of money which he cud have invested somewhere else for profits. Poor guy ... I pity him.
    Reply | Link to Comment
  •  
    May 19 12:05 AM
    yahoo is strong company that really dosnt need MS or ican who only cares about his pockets. they should stick to their guns and stay what they've always been
    Reply | Link to Comment
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