Yahoo shares rise on takeover talk

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NEW YORK -- Yahoo shares rose nearly 7% on Friday on renewed speculation, sparked by former Wall Street analyst Henry Blodget that the Internet company could be a takeover target for Microsoft.

Kevin Johnson, Microsoft's executive in charge of its advertising business, said Thursday that the software maker aimed to be one of the top two players in Internet advertising within three to five years.

It aims to get there by increasing its share in Web search, page views, advertising dollars and time spent online.

Digital business blog Silicon Alley Insider connected the dots and said Microsoft was not likely to grow that fast unless it bought Yahoo for its Web search share and display advertising business.

"Buying Yahoo would give Microsoft 30% search share instantly. It would also boost Microsoft's ad share close to that 40% goal," blog co-founder Blodget wrote.

His opinion of a deal? "We continue to think that a Microsoft acquisition of Yahoo would be disastrous for Yahoo."

Blodget, Merrill Lynch & Co's former high-flying technology analyst, had been accused of issuing misleading reports during the Internet boom to win investment banking business. In the last year, Merrill Lynch has settled for some $164 million lawsuits over accusations it published biased research.

Analysts said the Friday blog entry had impacted trading in Yahoo shares and options.

"It's definitely playing a role. There's nothing else out there that's really newsworthy," said Global Crown Capital analyst Martin Pyykkonen.

"I don't put a lot of credibility (into the idea) that anything is going to happen any time soon," he said. "But his conclusion from what Microsoft said is logical."

More than 240,000 Yahoo options crossed the tape Friday, according to Interactive Brokers Group. In all, three times as many calls -- giving investors the right to buy Yahoo shares at a specific price -- traded than puts Friday.

"Speculation from Henry Blodget about the possibility of Microsoft making a bid for Yahoo tantalized option investors and inspired ideas that Yahoo shares will make a test of the late October high of $34.08," said Rebecca Engmann Darst, equity options analyst at Interactive Brokers Group.

Engmann Darst noted nearly a third of Friday's moving volume was situated in the December calls at $27.50 and above.

"This, coupled with selling in the December $30 puts, implies upside price movement for Yahoo shares over the next month," she said.

Yahoo shares closed $1.40 higher to $26.82 on Friday after trading as high as $27.13 earlier in the session.
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