The Yahoo Microsoft Merger saga continues as Yahoo and Google have signed an advertising pact in the face of mounting new pressure on Yahoo to sell to Microsoft. Carl Icahn, corporate mega-investor, has purchased a large stake in Yahoo and was preparing to force changes on the Yahoo board that have led to a Microsoft takeover. Today’s announcement appears to leave the Microsoft deal in the lurch, though I’m not clear yet why Icahn can’t fight a proxy battle to get control of the company and then back out of the agreement. Based on today’s news that is not part of his plan, though anything is possible in the rapid fire take no Microsoft prisoners battle where the Yahoo board appears more interested in thwarting Microsoft than doing good for Yahoo’s shareholders who today saw a drop of 10% in shares as another potential Microsoft deal crumbled. Last year Yahoo rejected $40 per share, and a few months back they rejected $34. One does not have to have much imagination to wonder how long it’ll be before they are rejecting $25.
An interesting investment question right now is whether Yahoo is priced low or high given all the new information. If, for example, a new board will come in within a year or so it’s very possible that MS will make another aquistion offer well above current prices. A new board would probably view this favorably. If true Yahoo’s a good buy now. However if the stubborness will continue for years it’s not at all clear that Yahoo can dig itself out of the profit and morale busting hole it’s been digging for several years while Google was eating Yahoo’s lunch and serving it back – free – to Google investors and employees.
Disclosure: I have Yahoo. Which means I have 90% of the value I had this morning.