SA: RBC Analysts: Stay Long Yahoo As Its Possibilities Grow

"Testing search ads for Google Inc. (GOOG) and merger negotiations with News Corp. (NWS) and Time Warner Inc.’s (TWX) AOL unit are just some of the ways Yahoo! Inc. (YHOO) management is trying to expand the range of possible alternatives to Microsoft Corp’s (MSFT) $42.4-billion takeover bid in an effort to get more for its shareholders. Meanwhile, News Corp. is reportedly in negotiations with Microsoft to join in its bid.

Is it clear than leaks to the press have become a major factor in these negotiations. So much so, that even seemingly unrealistic options are rumoured to be on the table.

As for what is known, the outsourcing deal with Google has a net benefit for Yahoo of around $500-million, or $5-billion in enterprise value and roughly $5 per share, according to RBC Capital Markets analysts. Yahoo was trading under $19 per share before Microsoft’s bid emerged, while the cash and stock offer is worth around $29 these days. So Yahoo is essentially trying to make the case that half of the remaining premium between these two prices could theoretically be matched instantly, the analysts said in a report."