New York (NY) – In the end everyone may be happy. If Citi analyst Mark Mahaney is right, than all that PR work and talk about maximizing investor value may pay off for Yahoo and Microsoft will get Yahoo for about 10% more than it initially intended to pay.

Henry Blodget, one of the most visible analysts during the dotcom boom, posted Mahaney’s notes to investors, which basically provided some reasoning behind Citi’s decision to upgrade Yahoo on Tuesday. While Mahaney does not know for sure that Microsoft will increase its bid to $34, which would mean that the company will be paying about $49 billion for Yahoo, he states that a Microsoft-Yahoo deal is the “most likely outcome” of the current scenario – “at a price likely higher than the initial $31 bid”.

The analyst believes that $34 would be reasonable as this price would reflect 16 times the estimated 2009 EBITDA of Yahoo ($2.2 billion).

Yahoo clearly is in a fantastic negotiation position as many people, not just at Yahoo and Microsoft, believe that Yahoo is must-purchase for Microsoft in its battle with Google. Mahaney noted that Microsoft is unlikely to walk away from the Yahoo bid as the company has yet to gain significant in the online advertising market yet and stop Google’s advances. “No other step could potentially address the scale/liquidity challenge of [Microsoft’s] ad platform,” he wrote.

It appears that there is a certain kind of consensus in the industry that Yahoo will end up with Microsoft, one way or the other. We keep hearing about ongoing negotiations behind doors and Yahoo uses every opportunity it has to show investors and analysts how strong the company is, which really may be just a key part of Yahoo’s negotiation strategy.

Microsoft and Yahoo did not comment on Mahaney’s analyst note.   

Yahoo shares closed at $28.73 on Tuesday.

Everyone may be happy?!?

Mar 26, 2008 03:22     

@#$% that!!! It would be one of my worst nightmares coming true. Probably the only worse possible thing would be aol buying Yahoo. ms will do horrible, unspeakable things to yahoo's services, especially yahoo mail, like they did to hotmail. I'd rather see Yahoo dying than being bought by ms. I guess I'll have no choice but to switch to gmail as my primary email service, and find alternatives to various other Yahoo services I'm using.

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haters.

Mar 26, 2008 08:56     

if your service is same as before and run by the same yahoo employee as before why switch to google? just becaue it's own by MS? now that's a hater for no reason. google is a monopoly in search too, and they are into every thing that comes along and mine all your search and data to make a profit out of you and sell to highest bidder. Isn't that just as bad?
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Re: haters

Mar 26, 2008 13:06     

If the service is the same and run by the same people, then it's ok. But ms won't keep things that way for long. That Ballmer guy would just blow up if they did. Little by little, they'll start plugging their crap, switching to windows and .net, integrating with msn/live/whatever, adding ie-only features, till one day you'll find the said service only runs in windows ie .net media player silverlight, requires a passport/live id, registers your computer and phones home for validation from time to time, requires 3 times more resources, and runs much slower, buggier and less secure than it was in the beginning, and with a horrid design too. I wouldn't be surprised if features or whole services get removed or changed to require payment or registration to other ms stuff. Indeed, google is not the "no evil" company they usually claimed to be. However, their services tend to be simple and work reasonably well. And generally, I think they're the lesser evil.

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