[Posted on March 18, 2008 - 5:30 PM]
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DiggHaving floated potential tie-ups with News Corp. and Time Warner Inc.'s AOL unit as alternatives to Microsoft Corp. acquiring it, Yahoo! Inc. is now taking another tack: making a case for remaining independent.
Yahoo! on Tuesday released details of a plan that aims to nearly double its operating cash flow over three years to $3.7 billion and projects $8.8 billion in revenue in 2010. It also said it is on track to meet first-quarter targets.
But while the Sunnyvale, Calif., Internet company said the projections predate Microsoft's $31 a share, or $44.6 billion, offer on Jan. 31, analysts said the move is a bargaining ploy to spur the Redmond, Wash., software giant to raise the offer, whose current value is roughly $42 billion.
"This is another step in the public negotiations with Microsoft," said Clay Moran, an analyst with Stanford Group. "Yahoo!'s first effort to build this negotiation was to find other suitors who might be interested. That didn't pan out. Now it's trying to strengthen its position by putting out an aggressive forecast. We think this is a prelude to private negotiations."
In a statement, Yahoo! said it expects its growth to outpace market rate forecasts of the growth in online display and video advertising. Yahoo! said the projections supports its view that Microsoft's offer substantially undervalues its operations. But those who follow the company were skeptical about Yahoo!'s estimates.
"There's a heck of a difference between a PowerPoint presentation and how you can get 25% revenue growth year-over-year, which is almost double the revenue growth the Street is projecting," said Jeffrey Lindsay, an analyst with Bernstein Research. "And they're going to do it in an economic downturn and with the same sales force they have. Saying it is one thing, and delivering it is another."
Lindsay also said that Yahoo! will be hard-pressed to meet its targets amid weakness in the U.S. economy and mounting competition from Google Inc., which recently closed its acquisition of DoubleClick Inc.
Ashkan Karbasfrooshan, a Yahoo! shareholder and president of technology industry blog WatchMojo.com, said he does not think the latest plan will fly with investors. "Jerry Yang has no credibility anymore," he said. "He doesn't care about shareholders--he cares about maintaining control of Yahoo!, and this is the latest stunt in the charade to avoid the inevitable."
With Yahoo! and Microsoft reportedly holding informal talks last week, Karbasfrooshan also speculated that Yahoo! may have disclosed the rosy forecasts to make it easier for Microsoft to sweeten its offer, since some shareholders of the software company have opposed it raising its bid.
"Microsoft shareholders are asking why they're even paying $31 for Yahoo!" he said. "With these numbers, maybe Microsoft shareholders aren't throwing up because they're paying $31 for this company."
A Microsoft spokesman declined comment. If Yahoo! continues to resist formal deal talks, Microsoft could take its offer directly to shareholders or mount a proxy fight to take control of its board of directors.
In a research note Tuesday, Citigroup Inc. analysts Mark Mahaney and Brent Thill said Microsoft remains intent on closing the deal quickly. "After a multiyear struggle to produce an organic online initiative with critical scale, we believe Microsoft is very committed to acquiring Yahoo! sooner rather than later," they wrote. "With almost $1 billion in operating losses over the past year and a slower than estimated revenue trajectory, a Microsoft-Yahoo! combination will help fill in many of the critical holes in the existing business." - David Shabelman
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