Yahoo shares touching on pre-Microsoft level
Update at 3:26 p.m. PDT, with analysts comments
Yahoo shares fell below $20 on Tuesday, coming within a breath away from its previous trading level before Microsoft launched its failed buyout attempt five months ago.
Shares of Yahoo, which have been on a steep decline since the company announced on June 12 that Microsoft was no longer interested in buying the company and that a partial sale of its search business to the software giant did not make sense for Yahoo, dropped as much as 5.2 percent in intraday trading to $19.59 a share, before recovering a portion of its lost ground to end the trading day down 2.23 percent at $20.20 a share.
That stock performance has brought Yahoo virtually full circle to the level at which its shares were trading prior to Microsoft publicly announcing its unsolicited buyout bid on February 1, which valued Yahoo at $31 a share. The day before Microsoft made its buyout bid public, Yahoo closed at $19.18 a share.
For Yahoo, its share price has gone on a wild ride during the past five months, occasionally getting hit with a case of whiplash.
As expected, after Microsoft announced its unsolicited buyout bid for the company, the Internet search pioneer's shares went on a rocket ride, soaring 48 percent the following day. The stock continued to trade in the $28 to $29 per share range until mid-March, when it suffered a slight setback after Time Warner's AOL announced it would acquire social-networking company Bebo in a $850 million transaction.
Time Warner had been rumored to be a potential rival to Microsoft's Yahoo bid, with a potential swap of assets that would have involved AOL. News of the Bebo deal pushed Yahoo to $27.50 per share that day, and it continued to slide as low as $25.85 a share in the subsequent two days.
But Yahoo's stock got a lift when the company reaffirmed it would meet its first-quarter guidance, calming investors' concerns that Microsoft would use a weak earnings report to lower its buyout bid or use it as an excuse not to increase its offer.
But the biggest whiplash for the shares came in early May, when media reports on May 2 fueled speculation a friendly buyout bid at a higher price was about to be announced, only to come crashing down the following day when Microsoft announced over the weekend that it was withdrawing its offer.
When the markets closed that following Monday, Yahoo shares finished the trading session down 15 percent at $24.37 a share.
It wasn't until investor Carl Icahn announced his proxy fight to unseat Yahoo's board in mid-May that the shares jumped into the high $27 a share range.
Yahoo's shares continued to trade in the $27 to $26 per share range through mid-June, until the company announced on June 12 that the two parties were going their separate ways and Microsoft had no interest in buying it--even at its previously stated sweetened price of $33 a share or its initial price of $31 a share. The software maker was interested in buying only Yahoo's search assets, a move the Internet company turned down.
As Yahoo heads toward its August 1 shareholder meeting and proxy battle with Icahn, it is trying to woo investors to re-elect its current directors, rather than side with Icahn, who is seeking to oust its board members and install his own slate of dissident directors.
But the release Monday of Yahoo's shareholder presentation materials, where it outlines its efforts to negotiate with Microsoft and how it will move forward as an independent company, failed to aid Yahoo's share price performance and may have possibly hurt it.
One proxy solicitor observed: "The presentation had some impact on their share price. I can't say that is entirely what impacted its price, but anytime a company puts out information to investors, the market reacts."
Wall Street analysts expressed similar sentiments.
"Yahoo's investor plan communicated there is little to no prospect of a deal with Microsoft," said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co. "The Yahoo plan sees no possibility of a deal with Microsoft, but that may change once Carl Icahn puts forth his rebuttal."
Yahoo's return to its pre-Microsoft trading levels indicates investors have given up hope on a deal with the software giant.
"Clearly, the last of the opportunistic arbitragers have cleared out," said Lindsay.
Ross Sandler, an analyst with RBC Capital Markets, noted that not only have investors given up hope on Microsoft returning, but so have Wall Street analysts and members of Yahoo's senior management.
"Senior executives below the top five executives have all lost confidence in Yahoo and the management team," Sandler said. "The concept of Microsoft coming back at this point is pretty much a long shot."
Not only has the stock dropped but Lindsay noted that Yahoo's share price may reflect investors believe the company is in a worse position now than it was prior to Microsoft's bid earlier this year.
"When you factor in Google and assume it adds $3 per share to Yahoo's stock price, that implies Yahoo is only worth $17 a share. And then you take off $9 a share for all of its investments like Alibaba and its cash on hand, then that puts you at $8 a share just for Yahoo alone," said Lindsay, in crunching the numbers.
Dawn Kawamoto covers enterprise security and financial news relating to technology for CNET News. E-mail Dawn. 
Though I'm sure Yang will have other creative response, afterall he has his billions and doesn't mind going down with the ship if it turns into a "going down with the ship" vs. showing some humility and not running a public company via your personal ego.
Like I have been saying for the past few weeks, expect Yahoo stock to hit the pre-Microsoft offer Low of $19.59 very soon. Thereafter, Yahoo stock is going down to trade sidweways and downwards, and drift down to $12 in the next few years.
You mistakenly believe that the markets always fairly values shares in the short term rather than the long term. There is little evidence that short term pricing on the market means is accurate at all. Yang's $37 target price is a long term target. Not a short term. This reset back to what the value was back before the Microsoft bid is good since perhaps all the deal speculators will leave and folks can start priciing the company on its earnings and prospects as opposed to what Icahn or just some "give me the money now" folks wished the price to be.
If Yahoo can't execute after this Icahn greenmail is over then yeah the stock price will continue to slide. However, Yahoo was making money in the middle of all this. Probably will make money this quarter. They are still a bigger search and internet destination than Microsoft ( remember Microsoft was trying to buy Yahoo because they haven't made the internet business work successfully in how many billions of dollars of trying???? ) There was no evidence that Microsoft had a inciteful clue what they were doing. They had a backlogs of billions in the bank and were trying to buy their way into a business they haven't been able to get a foothold in competitively. That's not any better of a management strategy than Yahoo has been exhibiting the last couple of years. The only "win" was going to be for the folks who "cut and run" after the merger. The Microsoft stockholders would be out billions. The Yahoo long term stockholders really won't be all that much better off either.
Never going to get a accurate pricing on the market of yahoo as long as there are a large number of "cut and run" folks influencing the stock price.
- by someguy999 July 1, 2008 6:57 PM PDT
- I'm confused by the ICAHN shares worthless... its not about the price, its about the % which is the same today as it was yesterday. You do realize that he wasn't trying to make money off the deal but rather gaining more shares.
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- by The_Decider July 1, 2008 8:55 PM PDT
- Those execs that left are meaningless
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- by ltonnews July 2, 2008 9:50 AM PDT
- "...You do realize that he wasn't trying to make money off the deal..."
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(14 Comments)If you really think people are going to come crawling back to yahoo, you're the only one. it seems like 1-2 execs leave by the week. and that's just the execs, not to mention the masses that don't make the media.
ROTFLMAO. That's how Icahn makes money. The PC term is called "greenmail". The not so PC term is extortion, blackmail, and racketeering. Icahn's strategy is either make a large enough ruckus to get paid to "go away" or suck large amounts of money out of any company he can to acquire the company he has a stake in. In the latter case often the merged company chokes in the aftermath. Ichan doesn't care because at that point he will have dumped any long term interest in the merged entity. As long as there has been a massive transfer of funds from the aquiring's company's accounts to his, he is set. What Ichan was lusting after was not an opportunity to Yahoo but a back door the billions that Microsoft has in the bank. That is it. The "concern with yahoo management" is just a smokescreen. Ichan has no business insights. He explicitly admitted in a 60 Minutes interview that he is not a "manager". Ichan has not successfully run any large company for an extended period of time. (TWA? Dead, but managed to sell off to American Airlines. )
Frankly, Icahn as much as Yahoo management could just as easily be at fault for the string of execs leaving. Icahn has NO other management strategy other than the SELL out. He doesn't want to operate Yahoo.. just sell to Microsoft. Or chomp up into pieces and sell the whole thing to other folks. If selling in a position of weakness what is the likelihood that the company selling out to is going to keep the execs? ( It is lower. ) Silicon Valley... hostile takeovers usually don't work well.
Yahoo has certainly made a long strings of mistakes over he last couple of years. However, Icahn certainly isn't making things better. Right now he is just being disruptive just to be disruptive.