The Yahoo Bargain

If you wanted a piece of hardware in January and thought it was necessary, would you be thrilled that it now costs only one third of the price at the beginning of the year? Of course, you would be. And perhaps, if the ‘Geek Force’ is strong, you might buy two of whatever it is.

Microsoft is in a comparable position. In January 2008, Microsoft made a bid for Yahoo. The offer was almost forty five billion dollars. That translates to $31.00 per Yahoo share. Today, on the stock market, Yahoo was a low of $11.00 for the day’s trading. Yahoo closed at $11.55 and has closed lower previously.

Microsoft has to consider Yahoo as a bargain now. A buyout now would be far less expensive than the $45 billion dollars that it was willing to pay in January. There could be two possibilities, among many, why Microsoft has not acted.

• 1. Microsoft was absolutely wrong in January. The software giant was fortunate enough to dodge a $45 billion dollar blunder. Steve Ballmer somehow avoided a colossal error.
• 2. The second possibility is that Microsoft still wants Yahoo. In January, Microsoft saw the acquisition of Yahoo as a strategic move to compete with Google. And it still does. It may be that Microsoft has a target price in mind. The level at which Yahoo is valued now may be considered too high. And Microsoft will wait for its target price and then come to the rescue of Yahoo.

Officially, Microsoft says it is no longer interested in Yahoo. However, Jerry Yang has stepped down as the CEO of Yahoo. And Yahoo is imminently affordable to Microsoft. Wall Street is watching - advantage Microsoft.

Catherine Forsythe