The saga of YahooGleSoft Corp. is getting more interesting by the day. Now that News Corp. is reportedly in the mix, with a possible bid for 20 percent of Yahoo, divining just how extremely well Jerry Yang & Co. will make out could be close to getting ridiculous. For Yahoo, entertaining News Corp.'s bid is either a genuine defensive move to keep the company independent or a bluff to pry open Microsoft's wallet after rejecting its initial $44.6 billion bid.
So what does Rupert think? He's possibly dangling the large MySpace carrot in front of Yahoo, where social networking never worked, in exchange for a chunk of the search firm, which comes with a big user base and expertise in online display advertising. Yahoo is also reportedly feeling out Time Warner and AOL about a possible deal to fend off Microsoft.
So is Yahoo—with its long-slumping share price, recent layoffs, and second-fiddling to Google—worth the sort of soaring premium a bidding war could invite? Other finance and industry heavyweights have been weighing in this week too on whether a huge premium for Yahoo even makes sense. This week Legg Mason's Bill Miller, a big Yahoo shareholder, agrees with a higher valuation, which is no surprise given his large stake in Yahoo and his apparent willingness to sell.
But Om Malik says no—and he makes no bones about it.
He writes, "Call me cynical, but there is a reason the stock is trading at a four-year low," and says, "Yahoo is suffering from a case of corporate delusion."
Meanwhile, Microsoft's $44.6 billion has dwindled closer to $41 billion as its share price slides. Yahoo's shares have yet to breach Microsoft's original premium of $31. It seems investors suspect there's a possibility the deal will fall apart. Analysts still favor a Microsoft win, however. Before news broke of News Corp.'s bid, Citigroup's Mark Mahaney predicted a slim 5 percent chance that an emerging bidder would beat back Microsoft, which has a 55 percent shot at closing the deal if it sweetens its offer. His widely quoted note offered up other scenarios too, including one where Yahoo outsources its search to Google (30 percent), as well as a chance (10 percent) that regulators will block a Yahoo buyout. But the Wall Street Journal now says Google may be souring on any such revenue-sharing agreement.
In the meantime, a few shareholders are organizing and suing. Most are just holding their breath.
