Impatient Yahoo investors sell

Shares dip as some see gains as 'too little, too late'

While analysts debated whether Yahoo's quarterly earnings performance disclosed Tuesday would prompt a higher bid from Microsoft, investors just seemed impatient and sold the stock well below its presumed acquisition price.

Yahoo, which has been spurning Microsoft's $31-per-share bid, saw its shares slide 1.6% on Wednesday to $28.08.

While Microsoft's offer has slipped $1 because of the slide in its own share price, few analysts suspect that Microsoft won't at least make whole its original $31 offer, if not bump it some.

Tuesday's reported first-quarter numbers, which beat analysts' expectations, "will help strengthen Yahoo's hand and may encourage Microsoft to sweeten its bid for a quick and friendly deal," Jefferies analyst Youssef Squali said.

Jackson Securities' Brian Bolan guesses that Microsoft, led by CEO Steve Ballmer, will offer $34 "to get the deal done before the hostile deadline that comes at the end of the week."

Microsoft has said that it was willing to engage in a proxy battle to persuade Yahoo, led by CEO Jerry Yang, to sell, but executives at the world's premier software company undoubtedly would prefer a less odious friendly acquisition.

Behind the scenes, Yahoo also is listening to partnership offers from Time Warner, News Corp., Google and others in an attempt to either drive Microsoft's bid higher or remain an independent company with a stock price that doesn't instinctively sink 25% if Microsoft rescinds its offer.

"The company's strong results are simply too little, too late to help keep Yahoo independent and out of the hands of Microsoft," Stifel Nicolaus' George Askew said.

Many said Wednesday that even if Microsoft does increase its bid, money put in Yahoo stock might sit idle for too long to make it a worthwhile investment.

Credit Suisse analyst Heath Terry seemed particularly impatient Wednesday in downgrading the stock even while raising his price target from $26 to $30.

"With Yahoo likely to continue to drag its feet on any deal with Microsoft, the risk of long regulatory approval process before the deal can close and little chance of a higher offer coming from either Microsoft or another bidder, we are revising our rating to 'neutral,' " he said.

Begging to differ is Citi analyst Mark Mahaney, in part because Internet advertising is where Microsoft needs to be.

"Both Yahoo and Google's results suggest online advertising fundamentals aren't softening as much as feared," he said. "Further, first-quarter results indicate Google's lead continues to mount, so strategic options may be narrowing for erstwhile competitors.

"We detect in Yahoo's public comments a greater willingness to negotiate on price," Mahaney added. "We believe Yahoo shareholders will benefit."