Yahoo stock takes a beating after deal collapses
The Internet firm sees its share price plunge 15% in early trading after it turns down Microsoft's sweetened merger proposal.
SAN FRANCISCO -- Yahoo Inc. shareholders reacted with shock and dismay after merger talks with Microsoft Corp. collapsed over the weekend, sending shares tumbling in early trading today.
Before the opening bell, Wall Street analysts cut ratings and price targets after the Sunnyvale, Calif., company rejected Microsoft's offer. Yahoo's stock began trading today at $23.02, down nearly 20% from Friday's close and far below the last-ditch bid of $33 a share that Microsoft said it made Saturday before walking away. Yahoo shares recovered to close down, $4.30, or 15%, at $24.37.
The plunge sent a clear message about investor sentiment about Yahoo's prospects as a stand-alone company.
William Morrison, an analyst with ThinkPanmure, said the decision to rebuff Microsoft could go down in history as "one of the most destructive decisions for shareholder value in the history of Internet stocks." He estimates the fair value of Yahoo shares at $20.
After a three-month stand-off with Microsoft, Yahoo co-founder and Chief Executive Jerry Yang is under growing pressure to convince investors that his company is worth more than what Microsoft offered.
"With Microsoft's withdrawal, we'll be better able to focus our energy on growing our industry leadership and maximizing value for stockholders," Yang wrote in a post, called "OK, so now what," on the company's blog late Sunday.
Yahoo management was emboldened in its quest to stay independent by the success of a two-week test late last month in which Yahoo carried online search advertising from Google Inc. Yahoo is banking on a broader search advertising pact with Google, which earns 60% to 70% more for the average search than Yahoo does, in coming days. Such a deal would probably draw intense regulatory scrutiny.
Yahoo also has been in talks with Time Warner Inc.'s AOL in a deal that would give Time Warner roughly a 20% stake in Yahoo. But Microsoft's withdrawal could change those talks, with Microsoft emerging as a possible suitor for AOL.
Microsoft shares fell 16 cents, or 0.6%, to $29.08. Google gained $13.61, or 2.3%, to $594.90.
Yang also will have to prove that Yahoo can reverse skepticism from Wall Street, which has grown impatient as the company has failed to focus and execute in recent years. In the meantime, search leader Google continues to dominate the lucrative online advertising market.
