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Yahoo! ripening for an acquisition

Yahoo! is struggling to be anything more than M&A fodder. What should it do?

An analyst for Sanford C. Bernstein pegs the value of Yahoo!'s cash and stock holdings below the value of its actual business. No wonder word on the street is that Microsoft is mulling over an acquisition.

At $24.09, Thursday's closing price, Yahoo has a market capitalization of $32 billion. When Mr. Lindsay looks at the company's $2 billion in cash, along with its holdings in Yahoo Japan, Alibaba (the Chinese e-commerce firm) and other entities it doesn't run, he comes up with a value of $13.24 a share. That leaves a value of $10.51 a share for the actual business of Yahoo, making the value of Yahoo's core business about $14 billion, or 7 percent of Google's $200 billion market value.

What is Yahoo! to do?

I like its open-source approach, but it's not going to be enough in the short term to stave off the Google juggernaut. Would Microsoft+Yahoo! be enough? Some think the pairing is inevitable, but I'm never a fan of two negatives equaling a positive. Not in business.

It must be frustrating for Yahoo!. It has exceptional properties like Flickr, but it's unclear whether it's actually making much money from them. In the meantime, Google does one thing particularly well - Search - and it covers a multitude of other weaknesses.

What do you think? Does Yahoo! stand a chance?