Rumor mull

Yahoo sets tongues wagging again

Apparently, Microsoft wants to buy Yahoo for about $60 billion.

That might suit Yahoo investors — who'd be paid more than double what their stock is currently worth — but, alas, a Microsoft-Yahoo combination is still just persistent grist for the Wall Street rumor mill.

The latest version of this vaguely sourced rumor surfaced in May, and this week it was discussed again in a Bear Stearns note wherein analyst Robert Peck made Yahoo a top pick, writing, "We believe that Microsoft continues to evaluate Yahoo as a target."

Also this week, Jefferies & Co. analyst Youssef Squali called Yahoo "an attractive acquisition target." He called Yahoo his "value pick" and reiterated his $34 target price on shares and "buy" recommendation.

Peck has an "outperform" rating on Yahoo and $30 target. Shares closed Thursday at $24.15.

To be fair to Yahoo, a nonexistent bid from Microsoft or any other acquirer is not the only reason Peck and Squali like Yahoo stock. Squali, for one, is bullish on Yahoo's $300 million acquisition this week of BlueLithium, which operates an online ad network and provides technology for "behavioral targeting." That means that, once the acquisition closes near year's end, Yahoo! will be better able to push ads to people who will actually be interested in viewing them.

BlueLithium, once combined with Yahoo's owned and operated properties and its Right Media Exchange, which it recently bought for $700 million, will make Yahoo "one of the largest ad networks, with better monetization capabilities and a broader set of offerings in the performance-based display ad market," Squali said.

In addition, Peck sees four specific catalysts that will drive the stock higher in the next 16 months: successful branding initiatives; good results from its new Panama ad platform; an initial public offering for Alibaba Group, the Chinese Internet firm that Yahoo owns 40% of; and "a material share repurchase."

"Yahoo's shares represent an attractive risk/reward scenario for investors willing to wait for Yahoo's growth initiatives to deliver positive results," Peck said.

Patience is indeed key, it seems. Yahoo shares, after a nifty 150% run-up in 2003, haven't budged in more than three years.
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