New York (NY) ??“ In the end everyone may be happy. If Citi analyst Mark Mahaney is right, than all that PR work and talk about maximizing investor value may pay off for Yahoo and Microsoft will get Yahoo for about 10% more than it initially intended to pay.
Henry Blodget, one of the most visible analysts during the dotcom boom, posted Mahaney??™s notes to investors, which basically provided some reasoning behind Citi??™s decision to upgrade Yahoo on Tuesday. While Mahaney does not know for sure that Microsoft will increase its bid to $34, which would mean that the company will be paying about $49 billion for Yahoo, he states that a Microsoft-Yahoo deal is the ???most likely outcome??? of the current scenario ??“ ???at a price likely higher than the initial $31 bid???.
The analyst believes that $34 would be reasonable as this price would reflect 16 times the estimated 2009 EBITDA of Yahoo ($2.2 billion).
Yahoo clearly is in a fantastic negotiation position as many people, not just at Yahoo and Microsoft, believe that Yahoo is must-purchase for Microsoft in its battle with Google. Mahaney noted that Microsoft is unlikely to walk away from the Yahoo bid as the company has yet to gain significant in the online advertising market yet and stop Google??™s advances. ???No other step could potentially address the scale/liquidity challenge of [Microsoft??™s] ad platform,??? he wrote.
It appears that there is a certain kind of consensus in the industry that Yahoo will end up with Microsoft, one way or the other. We keep hearing about ongoing negotiations behind doors and Yahoo uses every opportunity it has to show investors and analysts how strong the company is, which really may be just a key part of Yahoo??™s negotiation strategy.