Tech Stock Flameout Sparks Microsoft-Yahoo Rethink

Yahoo's stock plunge has some reflecting to a time when Microsoft had initiated an unsolicited takeover bid for the online advertising company.

A volatile stock market, which sent Yahoo's stock plunging by eight percent on Thursday, has some reflecting back to the beginning of the year, when Microsoft had initiated an unsolicited takeover bid for the Sunnyvale, Calif.-based online advertising company.

Rob Sanderson, an analyst with American Technology Research, was widely quoted on Wednesday predicting that a new offer for Yahoo would be floated by Microsoft. Sanderson pointed to Yahoo's declining display ad revenues, its flagging search business and its unresolved ad revenue-sharing deal with Google as vulnerabilities.

Yahoo's stock has steadily declined since Microsoft's unsolicited takeover bid failed in May. Microsoft's initial offer of $44.6 billion on Jan. 31 amounted to paying a $31 per Yahoo share price, plus cash, for all of Yahoo. In contrast, trades of Yahoo shares closed on Thursday at $12.65.

Meanwhile, Microsoft has its own problems. Wall Street hedge fund manager David Einhorn announced on Tuesday that he is "done" investing in Microsoft.

"First, [Microsoft] sought to acquire Yahoo! and then after that failed, it announced extremely high internal investment requirements to pursue this 'huge' opportunity (read: 'Google-envy')," Einhorn stated in a letter to his investors. "We doubt the opportunity is what they say it is and wish MSFT focused on its core strength: software."

Microsoft's stock closed Thursday at $22.30, quite low compared with its 52-week range of $22.07 to $37.50.

Meanwhile, an ad hosting deal proposed by Google and Yahoo remains bogged down. Congress has been questioning the antitrust implications of the top two online search firms collaborating on ad sales. Microsoft strenuously opposes the deal, which was proposed during Microsoft's unwelcomed bid for Yahoo. Microsoft currently holds the No. 3 position in online search, trailing Yahoo. Google is still the leader in the online search market share by a wide margin.

Google stock closed Thursday at $328.98, down $9.13 for the day.

While tech-stock analyst Sanderson predicted that Microsoft will make another run at Yahoo, others have their doubts. Bank of America analysts Brian Pitz and Brian Fitzgerald were both quoted by Forbes on Wednesday as saying that the deal is "not likely in the short term."

Kara Swisher, of Wall Street Journal's Boomtown, downplayed Sanderson's speculation.

"Sorry to burst your pretty balloon, Rob [Sanderson], but that's not going to happen, according to my sources at Microsoft," she stated in her blog.

Microsoft, after ending its bid for all of Yahoo, expressed interest in buying just Yahoo's search business, and Redmond hasn't publicly budged from that position.

Swisher described her opinion on Microsoft's next steps regarding Yahoo.

"Microsoft plans to wait to see what happens in Yahoo's merger talks with AOL, an online unit of Time Warner (TWX)."

Yahoo and AOL reportedly have been discussing some sort of online advertising deal, with no details made public.

About the Author

Herb Torrens is an award-winning freelance writer based in Southern California. He managed the MCSP program for a leading computer telephony integrator for more than five years and has worked with numerous solution providers including HP/Compaq, Nortel, and Microsoft in all forms of media.

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