Buying on the rumor; selling the rest of the time

July 2, 2008

nasdaq.jpgYahoo’s stock price was rescued (yet again) by rumors that Microsoft is getting ready to bid for the web company’s search business (yet again).

The shares had looked set to fall below $19.18 on Wednesday — the level they stood at on January 31 before Microsoft first announced a takeover bid for Yahoo. But thanks to a report in the Wall Street Journal, Yahoo shares jumped about 6 percent in electronic trading early in the morning.

If this reversal of fortune sounds familiar, it should. These days, Yahoo’s stock seems more likely to rise on speculation about possible deals than anything having to do with its actual business. Check back on a MediaFile posting from June 24 that points out Yahoo shares jumped 15 percent after TechCrunch reported that it was back in takeover talks with Microsoft.

Here’s what the Wall Street Journal is saying about the latest talks:

“Microsoft Corp., positioning itself for a new run for Yahoo Inc.’s search business, has approached other media companies in recent days about joining it in a deal that would effectively lead to Yahoo’s breakup, say people familiar with the discussions.

Microsoft has held discussions with Time Warner Inc. and News Corp, among others, say people involved in the talks.”

Investors seem pretty pumped about the report, given the stock’s early morning surge. But they may want to read a bit further — and keep in mind all the past speculation that hasn’t resulted in a Microhoo deal — before getting too bullish.

“Some of the people familiar with these talks say they are preliminary and unlikely to result in a deal with Yahoo. Indeed, two weeks ago, Microsoft Chief Executive Steve Ballmer called Yahoo Chairman Roy Bostock to suggest they meet to discuss a new idea involving other partners, according to a person familiar with the matter. The meeting, scheduled for Monday, was subsequently canceled by Microsoft, which Yahoo took as a sign that Mr. Ballmer’s efforts to find a partner have so far failed.”

Meanwhile, the Washington Post reports that the Justice Department has opened a formal antitrust investigation into the advertising deal between Yahoo and Google.

“It doesn’t mean they have drawn any conclusions,” Peter Guryan, a partner with Fried Frank and formerly an antitrust lawyer in the Justice Department, told the newspaper. But “it is a significant step beyond a request for voluntary information,” he said. “It demonstrates that the DOJ clearly has questions.”

Keep an eye on:

  • The 2008 presidential race, which has already drawn a record number of dollars and voters, is poised to shatter another record: the amount of money spent on television advertisements (Reuters)
  • Sony Corp is seeing little or no sign of softer demand among U.S. consumers for its range of digital TVs, cameras and computer goods despite a weakening economy, a top regional executive said (Reuters)
  • “Kit Kittredge: American Girl” has her work cut out for her as she expands to movie theaters across North America on Wednesday after two weekends of solid returns in limited release (Hollywood Reporter)
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