Yahoo-Microsoft deal: Back from the dead?

Is Yahoo (YHOO) playing hard to get with Microsoft Corp. (MSFT)? Investors who have bid up shares of the internet portal today sure hope not.

Yahoo's shares, down more than 56 percent over the past year, have rebounded lately. The stock has eked out about a two percent gain this year amid speculation that Yahoo and Microsoft will do some sort of a deal involving their search businesses.

That talk was rekindled again today after media reports indicated that Microsoft Chief Executive Steve Ballmer would like to have a chat with his counterpart at Yahoo, Carol Bartz about search, a market which Microsoft has so far failed to crack.

Shares of the most visited Internet portal rose five percent to $12.60 in early afternoon trading. Further bolstering the shares was a CNBC report that said that Bartz, who replaced the embattled Jerry Yang, has rebuffed Ballmer's overtures. Bartz is contending with the Microsoft speculation just as she prepares a major overhaul of the company.

"Probably the timing is not optimal right now for Yahoo," says Scott Kessler, an analyst with Standard & Poors, which rates Microsoft as a "hold" and Yahoo as a "buy," in an interview. "Candidly, my sense is that she is just getting her footing."

Microsoft has been "pretty consistent" about its interest in doing a deal with Yahoo, he said. Plus, as Henry Blodget of Silicon Alley Insider points out, Yahoo is in a much stronger position against Microsoft when it comes to search. Yahoo's search market share has remained stable while Microsoft's search efforts have remained futile, he said.

"Microsoft is the one that absolutely has to do a deal here, not Yahoo," Blodget writes. "And as long as Yahoo can continue to cling to its 20% share of the search market, that's not going to change."

Kessler expects the two companies to join forces eventually. Whether investors will be patient enough for that to happen is another question.

Read Full Story
  • DJI27288.18140.480.52%
  • NIKKEI 22523346.49-13.81-0.06%
    Hang Seng23742.5125.660.11%
  • USD (PER EUR)1.170.00100.08%
    USD (PER CHF)1.090.00020.02%
    JPY (PER USD)104.950.02600.02%
    GBP (PER USD)1.27-0.0010-0.08%

From Our Partners