Microsoft Might Pay $53 Billion For Yahoo

September 4th, 2007 Noor

Yahoo remains an attractive but expensive buyout target for a number of cash rich companies, including Microsoft, a Wall Street analyst said in a report issued Tuesday.

The search engine and news aggregator “remains an attractive acquisition candidate” for both traditional media companies and large tech players “like Microsoft,” Bear Stearns analyst Robert Peck wrote in the report.

Yahoo has been faced with growing discontent from stockholders who were irate over delays in upgrading Yahoo’s Web search ad system, which was needed to better compete with Google. The fallout included the resignation of its chief executive Terry Semel back in June.

Peck said Yahoo could help newspapers “deepen their exposure to the Internet” but also noted that Microsoft, with its deep pockets, might be willing to pay up to $40 per share for the company — almost double its Friday closing price. Such a deal would be worth more than $53 billion, based on the number of Yahoo shares currently outstanding.

Peck said he based his valuation on previous tech industry buyouts. He noted that Microsoft’s $6 billion purchase of online ad conglomerate aQuantive represented an 85% premium on aQuantive’s presale stock price. The tech industry’s largest merger and acquisition to date remains AOL’s takeover of Time Warner in 2000. The deal was valued at $164 billion when first announced.

In mid-morning trading Tuesday, shares of Yahoo were up more than 5% to nearly $24.00.

Rumors of a Microsoft buyout of Yahoo gained steam earlier this year when the New York Post published a story indicating that the software maker was contemplating a takeover of its online rival. Such a move could help Microsoft gain ground against Google in the burgeoning markets for paid search results and Internet advertising.

Microsoft is under pressure to bolster its Web businesses as its traditional software products come under pressure from free and open source offerings such as consumer and business Linux operating systems as well as productivity software like Sun Microsystems’ StarOffice suite. Microsoft’s Online Services unit posted sales of $2.5 billion in the most recent fiscal year — up 7.6% over fiscal 2006.

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