Eating Yahoo! (YHOO) Piece By Piece

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Microsoft (MSFT) could not buy Yahoo! (YHOO), so now it is proposing to purchase just a piece. It wants to get the portal company’s search engine business and leave Yahoo! with its content portal and foreign investments.

According to The Wall Street Journal "Collins Stewart LLC Internet analyst Sandeep Aggarwal in a Monday research note estimated Yahoo’s search-ad business would be valued at roughly $21 billion in an acquisition by Microsoft." A deal of that sort would probably not satisfy new Yahoo! shareholder Carl Icahn. He wants to sell the whole company to Microsoft for $33 a share. Icahn probably got into the stock at about $27.

It is hard to see what Microsoft’s game is here. Yahoo! could use the money for a one-time dividend of $6 or $7 a share, but it would not have much of a business left.

The offer may be seen as a way to bring Yahoo! back to the conclusion that it has to be sold in one piece. It may have been made by Redmond to frighten Carl Icahn into thinking the Yahoo! board will do something idiotic. That could spur him to push harder for taking control of the portal company by giving him a stronger argument that Yahoo! does not know what it is doing.

Whatever Microsoft’s plan, the current approach has the benefits of being confusing and senseless.

Douglas A. McIntyre