Yang Exits: What's Yahoo Worth Now?

Shares are cheap, and Microsoft looms.

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Jerry Yang steps down as CEO, Yahoo shareholders rejoice (at least for today), and bets are being placed again as to whether Microsoft will be back with a bid.

So what's the post-Yang premium? So far today, about $2 billion (as of just before noon, with shares up 15 percent).

Speculation over the new CEO is ramping up (Kara Swisher considers some choices here), but the real question is still how much Microsoft might still be willing to pay after seeing its initial $33-a-share offer spurned in May. (Keep in mind Yahoo trades just above $12 now).

Some Wall Street predictions:

Collins Stewart, which keeps a buy rating on Yahoo with an $18 price target:

YHOO presents a material upside potential due to a likely MSFT deal – we believe that a possible Microsoft search deal can give $8 to $10 per share lift to YHOO.

Goldman Sachs says an acquisition still makes sense for Microsoft:

We still see the opportunity for Microsoft to potentially extract up to $1bn per year in capex and opex synergies from cooperating with Yahoo!'s search business. Though Microsoft may favor a search-only partnership, we believe that long term a full acquisition could be more appealing for both parties given Yahoo! shareholders presumably desire an acquisition premium for the entire business, and given Yahoo!'s search business presumably derives much of its traffic from Yahoo!'s communications and content operations. We previously estimated Yahoo! might be worth $21 per share to an acquirer with a search business such as Microsoft, versus our stand-alone valuation of $15 per share.

Either way, there's a $3-a-share upside there even if the sale falls through.

Not everybody agrees that Microsoft will come back to the table:

Friedman, Billings, Ramsey:

We believe that Yahoo's decision to replace Jerry Yang in the role of CEO is likely to have little impact on the company's prospects or share price. While some may view this as an incremental step towards a potential acquisition by Microsoft, we believe that Microsoft now has a fundamentally different view of Yahoo's strategic value, given the current economic and regulatory environment that is unlikely to be altered by another change of management titles.

Still, most everyone agrees Yahoo shares look much more attractive after a year-long fall. FBR notes Yahoo could still benefit from the right manager (vote for your favorite here) and says a low valuation means "we see little near-term downside given the expectations embedded in the current share price, though investors are likely best served staying on the sidelines ahead of the search's conclusion."

  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.

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