Monday May 5, 09:47 PM
Yahoo shares dive after Microsoft abandons bid
NEW YORK (AFP) - Yahoo (NASDAQ: YHOO - news) shares plummeted Monday as the Internet giant's future became clouded after Microsoft (NASDAQ: MSFT - news) walked away from a bid rather than pursue a hostile takeover.
Shares in the Internet pioneer sank 15 percent by the close of trading but remained five dollars above the price the stock was at when Microsoft's made its February 1 offer, signaling many in the market believe the deal is not dead.
"I don't think it's over," IDC analyst Karsten Weide said of Microsoft's quest to acquire Yahoo.
"I think what really happened is Microsoft called Yahoo's bluff. For now, they are singing the tune 'Tiiiime is on my side.'"
Yahoo stockholders will be furious and litigious, putting tremendous pressure on the firm to quickly come up with an impressive business plan or go crawling back to Microsoft, analysts believe.
"The question for Yahoo is how long can they hold out," Weide said.
The fact that Microsoft's stock price ended Monday trading down slightly to 29.08 dollars hints that the market thinks the world's leading software maker needs a Yahoo tie-up to battle Internet advertising colossus Google (NASDAQ: GOOG - news) .
Google's stock price climbed more than two percent in a sign investors feel the Microsoft setback is good for the Mountain View, California, company.
On Saturday, Microsoft yanked its proposal, saying the struggling Internet pioneer refused to budge despite the software giant upping its offer to nearly 50 billion dollars.
Microsoft raised its offer from 31 to 33 dollars per Yahoo share during talks aimed at resolving three months of corporate dueling.
Yahoo chief executive Jerry Yang refused to accept less than 37 dollars per share, a five-billion-dollar bump in purchase price.
Briefing.com analyst Jeffrey Ham said Yahoo shares are under pressure "as confounded investors try to assess the company's muddled future."
Yang says the company is better able to move forward without the distraction of a takeover bid.
"No one is celebrating about the outcome of these past three months and no one should," Yang wrote in a memo to employees posted at the Yahoo website.
"We live and work in a competitive world and the Web is only going to get more competitive. Executing on our strategic plan is what matters most."
Some analysts said Yahoo may need another merger partner to face up to Google.
"Of course, this is far from over," said Danny Sullivan at Search Engine Land.
"There's going to be a distraction at the very least caused by some shareholders themselves that are expected to be unhappy and who may wish to force a change."
Sullivan said Microsoft may have shot itself in the foot by refusing to come up with the extra cash needed to seal the deal.
"If Microsoft's walkaway from the Yahoo deal is indeed a ploy to save five billion dollars, Microsoft CEO Steve Ballmer may have proven himself pennywise and pound foolish," Sullivan said.
"He was prepared to spend billions to finally make Microsoft a serious rival to Google. For a bit more, he may have destroyed Microsoft's chance to get there."
Others said Microsoft did the smart thing by rejecting the deal and should use the money earmarked for a Yahoo purchase to instead invest in a host of smaller promising Internet firms.
"We applaud Microsoft's decision," said Robert Breza, analyst at RBC Capital Markets.
"We would expect Microsoft will look to other Internet and media properties."
Citigroup Analyst Brent Thill said that due to the lack of alternatives to Yahoo in the marketplace, there is a chance that both Microsoft and Yahoo can "reconcile their differences" and join forces.
Bernstein Research's Charles Di Bona said Microsoft is facing uncertainty as well about its future.
"We believe it is imperative that in relatively short order, Microsoft's management articulates a viable and credible new strategy for (its online services business) in the absence of Yahoo," Di Bona said in a research note.
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