Yahoo! (YHOO) Higher On Talk Of New Microsoft (MSFT) Bid

October 13, 2008 10:16 AM EDT

Shares of Yahoo! (Nasdaq: YHOO) are 5% higher this AM on speculation the drastic drop in the stock could bring Microsoft (Nasdaq: MSFT) back to the table with a new takeover bid. There is also continued chatter about a Yahoo!/AOL (NYSE: TWX) deal.

An analyst at Collins Stewart made some comments about a Microsoft/Yahoo deal this morning, saying the two "need each other." The analyst noted that Yahoo! is down nearly 60% from its peak in May '08, 38% down from the level it traded before MSFT made its offer on January 31st and more than 65% below MSFT's last best offer at $33.

Collins Stewart said, "Our view is that both companies need each other more than ever as a last attempt before ceding down to Google. It is a matter of time but the rise of Google will likely make both Yahoo! and Microsoft?s Internet business less relevant if not totally irrelevant in our view. Microsoft does not have a plan-b to ramp its search business without Yahoo! other than some marketing gimmicks and Yahoo! does not have compelling means to compete effectively against Google and also withstand material economic headwinds at the same time." The firm said it is time for MSFT/YHOO to reengage in talks and they think that an all cash deal in the low-to-mid $20s for Yahoo! is a good deal.

Shares of Yahoo! currently trade at $12.94.

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