The Associated Press October 5, 2011, 6:35PM ET

Yahoo shares soar on new Microsoft takeover hopes

Yahoo Inc.'s stock price soared more than 10 percent late Wednesday on hopes that its once-spurned suitor, Microsoft, will return with another takeover bid now that the struggling Internet company is mulling a possible sale.

Reuters reported late in the day that Microsoft Corp. is considering whether to make an offer, and that fed the takeover speculation that has swirled around Yahoo Inc. since it fired Carol Bartz as CEO five weeks ago.

The story cited unnamed sources that Reuters said included a high-ranking Microsoft executive saying there's disagreement within Microsoft on whether it makes sense to pursue Yahoo again more than three years after being rebuffed.

A Microsoft spokesman declined to comment.

Yahoo's shares reached $16.15, their highest point since Bartz's Sept. 6 ouster, before retreating to close at $15.92, an increase for the day of $1.46, or 10.1 percent. They fell 46 cents after hours.

Microsoft is widely viewed among investors as the most tantalizing candidate to buy Yahoo because the world's largest software maker has the cash to pull it off and a history with its rival that makes a takeover seem like a realistic scenario.

But making a case for Microsoft to buy Yahoo still requires wishful thinking. That's partly because Yahoo and Microsoft are now bound together in an Internet search partnership that gives Microsoft less incentive to buy Yahoo outright. Microsoft also is facing a challenge with personal computer sales slowing that could make the headaches that would accompany a Yahoo acquisition even less attractive.

Despite long-running problems, Yahoo still holds some allure because its brand remains among the best-known on the Internet. Its website attracts a worldwide audience of nearly 800 million, although its users are sticking around for shorter periods of time and hanging out more frequently at Facebook.

Various buyout firms and Internet companies have been identified has potential suitors since Yahoo co-founders Jerry Yang and David Filo sent an email to employees last month acknowledging several interested buyers had contacted the company, which is based in Sunnyvale, Calif.

Yahoo has hired investment bankers Goldman Sachs Group Inc. and Allen & Co., to advise its board as it fields those inquiries.

Filo's and Yang's note said Yahoo's board's strategic review could last months while the company also searches for a new CEO. In the meantime, Tim Morse, whom she hired as Yahoo's chief financial officer, is running the company. Bartz bluntly said not long after Yahoo hired her in 2009 that the company probably should have accepted Microsoft's original takeover offer.

Determined to narrow Google Inc.'s dominance of the lucrative search market, Microsoft had offered $31 a share for Yahoo in early 2008. It eventually sweetened the bid to $33 per share, or $47.5 billion, but withdrew the offer when Yang held out for more.

Yahoo's shareholders were incensed, and its board scrambled to justify why it didn't seize the opportunity to sell at a price the stock hasn't come near ever since.

Most analysts believe Yahoo would jump now at the chance to sell to Microsoft now, given that its revenue has been declining instead of growing as the board had promised. Any buyer probably would be able to pay much less than Microsoft once offered.

Analysts have estimated Yahoo could fetch $18 to $22 per share.

The question now is whether Microsoft is as attracted to Yahoo as it was three years ago. As part of its turnaround efforts, Yahoo hired Microsoft to run its search engine. That 10-year deal gives Microsoft 12 percent of the revenue from ads that run alongside Yahoo's search results and, more importantly to Microsoft, valuable insights into the interests of Web surfers.

Rather than bid by itself, Microsoft could team up with one of Yahoo's other potential suitors. That list includes Chinese Internet company Alibaba Group, whose CEO last week said it's "very interested" in buying Yahoo, and it includes the buyout firms Silver Lake Partners and Providence Equity Partners, Silicon Valley venture capital firm Andreessen Horowitz, Russian investment firm DST Technology and even another fallen Internet star, AOL Inc.

Microsoft shares gained 52 cents, or 2 percent, to $25.86 in Wednesday's late trading.


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