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Ballmer to Yahoo investors: What didn’t you understand about “No”?

November 20, 2008 12:07am
by Richard Waters

steve-ballmer.jpgIt looks like the message finally got through.

Steve Ballmer has already said it more than once. For good measure, he said it again today in front of Microsoft’s own shareholders: “We are done with all acquisition discussions with Yahoo.”

From Wall Street’s point of view, that seemed to give the statement the official ring of truth it lacked before. Mr Ballmer’s parting gift has just whacked another 21 per cent off Yahoo’s share price.

It’s probably a bit churlish to point this out, but the stock is now within 50 cents of where it stood when Terry Semel took over in the depths of the 2001 slump.

There are two things to note about Yahoo’s current share price. One is that, if you take off its $10bn or so in cash and investments (Yahoo Japan and Alibaba), Wall Street thinks the rest of the company is not even worth $3bn. That is less than 2x its expected ebitda next year. And this is a company whose vast - and apparently loyal - online audience has at times been coveted by most big media companies.

The other is that at today’s price, Yahoo’s stock market value has now fallen to roughly the value of its search business alone. Mr Ballmer was at pains again today to leave open the option of a “partnership” with Yahoo. If that means going back to the search partnership that Microsoft proposed last June, analysts reckon it could be worth $10-13bn to Yahoo shareholders (though Microsoft’s negotiating power is probably greater now.)

So, in theory, whoever takes over from Jerry Yang as CEO could hand the search business over to Microsoft and all the rest would be upside.

At some point, Yahoo’s stock just has to stop getting cheaper. That hasn’t been a good bet in 2008, though.

November 20, 2008 12:07am in Consumer Electronics, Internet | Comment

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