American Metaphor: YHOO Rejects $40, Lays off 1100

Discussion in 'Trading' started by Pa(b)st Prime, Feb 12, 2008.

  1. YHOO March 25 straddle is offered at $ 5.70.

  2. I know zilch about this particular deal. Why is YHOO not higher on a riskarb basis?
  3. Legg Mason Capital Management is the second-largest Yahoo holder, with over 80 million shares.

    Miller made his comments in a quarterly letter dated February 10 to investors in the Legg Mason Value Trust, a mutual fund.

    Here is the complete text of the section of the letter that address Yahoo and the Microsoft bid:

    On January 31, Microsoft made an unsolicited offer to acquire Yahoo at a price that represented over a 60% premium to where YHOO’s shares were trading. LMCM is YHOO’s second-largest shareholder, owning over 80 million shares. Subsequent to the deal being announced, we have met with Steve Ballmer, MSFT’s CEO, and spoken with Jerry Yang, CEO of YHOO.

    YHOO’s Board has pledged to give the offer careful consideration and to do what they believe will deliver the most long-term value to YHOO owners. That is the right message, and we are waiting to hear their views as they develop. That said, we think it will be hard for YHOO to come up with alternatives that deliver more value than MSFT will ultimately be willing to pay.

    We think this deal is a strategic imperative for MSFT, and that YHOO is in a tough spot if it wishes to remain independent. It has been reported that MSFT has been discussing a combination with YHOO for well over a year, and that it had been prepared to pay over $40 per share previously. We have no way of knowing whether those reports are accurate or not.

    Our own valuation work puts the value of YHOO in the range of those reported numbers, though, and we think MSFT will need to enhance its offer if it wants to complete a deal. YHOO shares were recently trading at a four-year low, and the stock averaged above the current offer price for all of 2004.

    YHOO is a uniquely valuable asset, and we expect MSFT will do what it takes to acquire it.

    One last point: the 60% premium MSFT offered for YHOO highlights what we believe are the significant opportunities present in our portfolios. Clients and shareholders are understandably disappointed when the performance of their portfolio does not keep pace with the broader market. But the price of a publicly traded security is one thing, and its value is something else. Price is a function of short-term supply and demand characteristics, which are heavily influenced by the most recent news and results. Value is the present value of the future cash flows of the business, and that is what we focus on. We believe the values in the market today are as attractive as they have been in the past five years, and patient long-term investors (including the Fund) should be well rewarded for putting money to work right in here.
  4. I got me a April25Put and April35Call
  5. jjk2


    are you saying you will profit from the volatility being priced into the options
  6. P.S.

    Yhoo did not reject a $40 offer, it rejected a $31 offer.

  7. That's a large premium from market price. So essentially the market is stupid. There goes the argument that the market prices in all information.
  8. Who's more stupid? The market or Gates & Ballmer?
  9. xxxskier

    xxxskier Guest


    News Corp. has essentially planted four or five deal guys at Yahoo HQ, working directly with Yahoo business development to try to find a deal to combine MySpace and Yahoo that both sides can swallow. The News Corp. team is led by Jack Kennedy, Fox Interactive Media’s EVP Strategy and Corporate Development, says a source with knowledge of the discussions. According to another source, the team was as Yahoo again on Wednesday, and has been there most of the last two weeks.
    According to our source, the deal structure would spin off Fox Interactive Media (the primary asset is MySpace, but IGN, Scout Media, Photobucket, Fox Sports,, Flektor, Ksolo; plus investments in Hulu, Simply Hired and Snocap are also assets of FIM) into Yahoo, along with a big cash injection from News Corp. and an unnamed private equity fund. The total investment would be valued at around $15 billion.

    Yahoo would be valued at somewhere around $50 billion before the transaction, north of Microsoft’s $44.6 billion bid. That would leave News Corp., plus the private equity group, with more than 20% of the combined entity. They’d be the largest single stockholder and effectively in control of the combined Yahoo/FIM entity and their nearly 150 billion monthly page views (which would be second only to Google).
    As far as we know the potential deal structure hasn’t changed, and they are still hung up on how to make the merger work without getting Google involved to take on search marketing. The team was expecting Microsoft to up its bid last week, forcing the Yahoo board to make a move. But Microsoft is taking things directly to shareholders, a time consuming move. That gives News Corp. more time to get their deal to pencil out.

    It’s possible that at the end of this ordeal we’ll see a Yahoo/MySpace combined company, with News Corp. as the biggest shareholder. But to do that these guys need to pull the trigger on a bid. It’s time to make a move, or fly back to LA.
    #10     Feb 21, 2008