Yahoo looks to up ante with investor pitch

Yahoo releases financial projections to shareholders in "last-ditch" attempt to squeeze more money out of Microsoft, analysts say.

Updated 5:20 p.m. PST with Alibaba looking to purchase Yahoo's stake.

Yahoo is using rosy financial projections to bolster its case with shareholders in a "last-ditch attempt" to get Microsoft to up the ante in its bid for the company, analysts say.

Yahoo executives began a series of meetings on Tuesday with the company's largest institutional investors and showed them a presentation detailing the company's three-year financial projections that illustrates "the broader picture of all the assets," says a source familiar with the matter.

Under Regulation Fair Disclosure, Yahoo is required to disclose material information to all investors at the same time, so it filed the information with the U.S. Securities and Exchange Commission to make it public.

Yahoo representatives declined to comment.

To Wall Street, the motivation was clearly to send a message to Microsoft.

"The company is clearly laying out a very optimistic scenario," Ross Sandler, an analyst at RBC Capital Markets, wrote in a research note. "Judging by recent history, we remain skeptical of Yahoo's ability to execute smoothly against this plan. If the overall economy and the online advertising space were in a healthier place right now, we would have more confidence. At the very least, this is a smart last-ditch effort by Yahoo management to squeeze a few more dollars out of Microsoft."

The strategy is likely to work, Sandler predicted. "We believe that the Microsoft/Yahoo deal ultimately goes through, and that today's argument could push Microsoft to sweeten its bid to avoid a hostile takeover which may alienate Yahoo employees," he wrote.

"At the very least, this is a smart last-ditch effort by Yahoo management to squeeze a few more dollars out of Microsoft."
--Ross Sandler, analyst, RBC Capital Markets

"This is another step in the public negotiation between these two companies," Clay Moran of Stanford Group Company wrote in a research note. "We believe this deal is turning friendly. But, Yahoo's alternatives are dwindling."

Mark Mahaney of Citi Investment Research also predicted that Microsoft will boost its offer. "Buying Yahoo may be Microsoft's ONLY game-changing option in (the) Internet sector," he wrote.

In the presentation, Yahoo reaffirms its first-quarter and full-year guidance of $1.28 billion to $1.38 billion and $5.35 billion to $5.95 billion, respectively. The company also expects to double operating cash over the next three years and projects 24 percent growth in search ads and 19 percent in display ads each year, Sandler notes.

The growth estimates assume that Yahoo will see significant revenue increase from search, market share gains in display, and acceleration of international growth, he adds.

That could all be a leap of faith, particularly in light of predictions for slower online ad sales growth because of softness in the overall economy.

A snag in the Microsoft-Yahoo negotiations could be coming in Asia--The Wall Street Journal is reporting that Alibaba Group, the Chinese Internet company that Yahoo owns nearly 40 percent of, is talking to investors about buying Yahoo's stake so it could stay independent if Microsoft acquires Yahoo. "For Microsoft, gaining Yahoo's Asia stakes was a key attraction when it made the bid Jan. 31, an offer now valued at about $42 billion," the report says.

 

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