# Is Yahoo Really Worth More Than What Microsoft Offered?

Yahoo’s stock had been declining steadily for almost two years before Microsoft showed up with Mad Money, yet the Internet portal thinks it’s worth $40 a share. Fact, or a case of corporate delusion? I think it’s the latter. Why is it worth$40 a share? (Is it because Microsoft offered $40 a share for Yahoo earlier, and Yahoo never took the offer and now are banging their head against the wall?) Last time Yahoo traded at over$40 a share was back in January 2006. Now I am not against the idea of Yahoo squeezing more money out of Microsoft, as long as Yahoo can make a good case for it. Still, a 60 percent premium isn’t enough for Yahoo’s investors such as Bill Miller of Legg Mason, a mutual fund company. In a letter to investors in his fund, he writes:

Our own valuation work puts the value of YHOO in the range of those reported numbers, though, and we think MSFT will need to enhance its offer if it wants to complete a deal. YHOO shares were recently trading at a four-year low, and the stock averaged above the current offer price for all of 2004. YHOO is a uniquely valuable asset, and we expect MSFT will do what it takes to acquire it.

I would love to see Miller’s valuation work on Yahoo. Call me cynical, but there is a reason the stock is trading at a four-year low. Of course, this is the same fund that has big positions in stellar performers like Countrywide Financial, eBay and Sprint Nextel.

Many Wall Street analysts think Yahoo is worth between $34 and$35 a share. And that is the best case scenario, and assumes that everything will go right for the company in the display advertising business. Gee, I wonder why Google is spending over $3.1 billion trying to buy DoubleClick? I think Yahoo is suffering from a case of corporate delusion. The company’s litany of woes is so long that it’s going to take some time before the proverbial sun will shine on Yahoo’s cow patch in Sunnyvale again. People seem to have already forgotten some of the problems that showed up in the fourth quarter of 2007 (not that they’ve been resolved), such as: * Yahoo’s search revenues slowed down after growing for four straight quarters. * Yahoo used to get paid by the broadband providers, but now it will have to pay them a piece of the advertising action. That will result in between$150 million and $200 million in lost fees in 2008. This was presented as a positive, but getting paid isn’t the same as paying. (AT&T and BT are offering between$300 million and $400 million as upfront payments, while Rogers will pay$50 million.)

And look at yesterday’s layoffs. After sending out an email thanking the troops for sticking by the company, Jerry & Co. cut about 1,000 jobs. Nice morale-boosting move. Memo to Yahoos: Jerry-atrics are as likely to shank you as the Barons of Redmond.

There will be some of you who might accuse me of being too hard on Yahoo, and perhaps I am. But it is hard to have empathy for a company that has consistently managed to underperform. It has been losing the talent that made it great. More importantly, there seem to be very few reasons to catalyze growth and a better future at Yahoo.

And if Microsoft wants to pay a 60 percent premium for this kind of a future, that’s a pretty good deal.

By the way, if you want to catch up with the roller coaster of the Yahoo-Microsoft showdown, Kara Swisher has a nice wrap-up today, while Michael Arrington is reporting of talks between Yahoo and News Corp.