Yahoo nears Microsoft's '08 buyout bid price

Story Originally Appeared in USA TODAY

Microsoft's bid for Yahoo in 2008 isn't looking so crazy now.

Shares of Yahoo, the struggling Internet portal trying to regain relevance in an era of mobile communications and Internet search, have soared almost 50% this year to a stock price above $29. While the stock's runup looks impressive and is drawing praise for CEO Marissa Mayer's first year on the job, it is only getting Yahoo shares close to the $31 a share that Microsoft bid for the company in 2008 -- an offer that was rejected by Yahoo at the time as being too low.

So finally crossing that $31-a-share level will hardly be reason for Yahoo shareholders to celebrate.

"If there's this notion that somehow (the stock's recent rise) validates Yahoo's decision making over the past five to five-and-a-half years, emphatically say, it does not," says Scott Kessler, analyst at S&P Capital IQ.

Three reasons why:

• Yahoo's value is well below Microsoft's bid. Microsoft's $31 a share bid was actually worth $44.6 billion, which is nearly 40% higher than Yahoo's current $32.1 billion market value. Why the discrepancy? Yahoo has reduced its number of shares outstanding by selling part of its ownership of Chinese Web site Alibaba, says Martin Pyykkonen, analyst at Wedge Partners.

• Most of Yahoo's value has nothing to do with its business. Roughly 75% of Yahoo's market value is linked to the company's ownership stakes of Alibaba and Yahoo Japan, Pyykkonen says. The stock's moves are most closely linked to the fact Yahoo may be able to raise money from its stakes in those businesses, not because of its core business, he says.

• Investor pain in the meantime. Investors know money received now is worth more than dollars gained in the future. Even if Yahoo's market value were to soar 40% to match the $44.6 billion Microsoft bid, that would have been more than five years of painful waiting for investors, Kessler says. Meanwhile, Yahoo shares are essentially flat from the date of the buyout offer, while the Standard & Poor's 500 is up more than 25%.

"It's almost a different era for (Yahoo) versus 2008 so I don't think it can be said that the Board did the right thing by rejecting (Microsoft) at that time," Pyykkonen says. "Just because the stock is back up five (plus) years later doesn't vindicate that decision."