Those tracking the price Microsoft has offered for Yahoo know that it fluctuates every day because half of the compensation to Yahoo shareholders would be Microsoft stock. If Microsoft continues its pattern of better-than-expected earnings releases later today, its stock, and, in turn, the compensation to Yahoo’s shareholders, could jump.
Microsoft CEO Steve Ballmer has indicated on multiple occasions that he’s not willing to raise the price for Yahoo. Many analysts don’t see any reason for him to do so, given that no alternative bidder has emerged.
When Microsoft made public its offer to Yahoo’s board of directors in the wee hours of Feb. 1, the deal was worth $44.6 billion, based on the $32.60 closing price of Microsoft shares the day before. Since then, Microsoft shares have closed as low as $26.99 on March 3, which lowered the value of the deal to $40.8 billion.
As of late-afternoon trading today, Microsoft was climbing in the range of $31.85 a share, putting the Yahoo deal at roughly $44.1 billion — not far from where it started nearly three months ago.
It’s fun to keep score this way, but the closing price on any given day may have little relationship to what Microsoft would ultimately pay for Yahoo. An agreement would have to be reached at that time and it would have to include some mechanism to lock-in that price for Yahoo shareholders.
But the trend is important. A third consecutive stand-out quarter for Microsoft could turn investor attention away from the uncertainty of the Yahoo bid and toward Microsoft’s core businesses of desktop and server software – which have been performing well so far this year on the strength of major product introductions.
Citi Investment Research analyst Brent Thill told investors not to ignore Microsoft’s fundamentals. The market has been overly “fixated on the shiny object Yahoo,” he said. That’s part of the reason Microsoft’s shares hit $27. But people have returned their focus to the core business, which explains, in part, why the company’s shares have recovered in the last month.
If Microsoft delivers today and issues a big-money guidance for the 2009 fiscal year, the stock and the bid for Yahoo could find a new, higher range. That could cause Yahoo investors – who will become even more important if Microsoft launches a hostile takeover this weekend – to reevaluate the offer.
Of course, the opposite scenario is also possible.
Check back this afternoon and tomorrow’s paper for a full report.