Ahead of the Bell: Yahoo drops and Microsoft rises
NEW YORK—Microsoft Corp. shares rose and Yahoo Inc. stock tumbled in premarket trading Monday after the two companies ended their long-running buyout talks.
Microsoft offered to buy Yahoo on January 31, and bid as much as $47.5 billion, or $33 per share on Friday, but Yahoo held out for a higher price of $37 per share. Yahoo shares fell $6.47, or 22.6 percent, to $22.20 premarket. The stock finished at $28.67 Friday, having gained 50 percent during the three-month negotiation.
Microsoft shares added $1.66, or 5.7 percent, to $30.90, up from a closing price of $29.41. The stock lost 10 percent of its value during negotiations.
Citi Investment Research analysts Brent Thill and Mark Mahaney said it was surprising the two companies couldn't come to terms and downgraded Yahoo shares to "Sell" from "Hold," saying its future in the Internet business is uncertain.
The analysts said Yahoo shares won't fall back to their price from late January, because the company could still be bought out by Microsoft or by News Corp. The company now has options other than a sale, they added: it could outsource searches to Google or enter a partnership with AOL or MySpace.
Thill said Microsoft shareholders would be relieved that the deal is off, but he said the Redmond, Wash., company still has to fix its "heavily unprofitable" Internet business. Yahoo would have made that business profitable sooner, Thill wrote.
He said Microsoft does not have any publicly available alternatives to Yahoo, so there is still a 15 percent chance the companies will combine.
Soleil analyst Laura Martin also downgraded Yahoo stock to "Sell" from "Hold."
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