Here’s a question worth pondering: What is Yahoo (YHOO) actually worth per share, both today and 3-5 years from now?
I expect Yahoo’s stock will get nicely whacked tomorrow. Does this create an opportunity?
There are many ways to answer this question. The traditional balance sheet approach is so well covered, let me suggest something else. Its worth, at least from an M&A perspective, what someone else is willing to pay.
Microsoft (MSFT) believed Yahoo was worth $33, at least as a part of Microsoft. Wouldn’t that imply the company has a value above the January 31 pre-bid price of $19 ?
Short answer: Maybe.
The key is whether there are any other bidders lurking put there.
Consider another high profile deal that failed to go through: GE’s attempted takeover of Honewell (HON) back in 2001. You may recall that HON was in merger talks with United Technologies (UTX) when Jack Welch offered $55.39 a share, which topped the UTX’ bid.
When the deal fell apart — rejected by EC anti-trust rules — the acquisition target dropped to the low $30s. By the market lows in fall 2002, it even kissed $20. Over the past 6 years, HON has gained better than 300%. I have been bullish on HON for quite some time, buying after the deal fell apart and holding on for many years; However, I recently sold out of a long held position in HON.
There are some similarities between GE/HON and MSFT/YHOO — and one crucial difference: Another bidder. In the GE/HON deal, there was also another bidder — United Technologies. I am less certain a friendly 3rd party bidder will show up to woo Yahoo!