Microsoft’s offer to buy Yahoo will most likely succeed, but it may not be the best use of the company’s ample cash reserves, according to a poll of analysts.
The standoff between Microsoft and Yahoo has stretched six weeks since the proposal was announced. Yahoo rejected the offer, which now values the company at $41.4 billion, saying the takeover bid “substantially undervalued” it.
The Reuters poll found that Wall Street brokers who follow either company remain convinced that Microsoft will prevail. All 8 Microsoft analysts surveyed and 14 of 15 Yahoo analysts said they believed that Microsoft would eventually acquire Yahoo.
“Yahoo’s options are becoming more limited, and it makes Microsoft’s offer look better,” said Andy Miedler, an analyst at Edward Jones, who has a “hold” rating on Microsoft.
Twenty-one brokerage companies responded. Seven brokers have analysts who follow both companies, and their votes were counted separately. In total, 33 financial analysts follow Yahoo and 40 analysts track Microsoft.
Analysts at three companies — Morgan Stanley, Goldman Sachs and Lehman Brothers — are restricted by their companies from publishing research on the merger as their investment banking arms are working on behalf of either Microsoft or Yahoo.
There is disagreement, however, over whether Microsoft must raise its half-cash, half-stock bid to succeed. A majority of analysts say they believe that Microsoft need not increase its bid beyond the current $31-per-share offer, although some analysts argue that it may need to improve the bid by making it an all-cash offer.
Twelve said they believed that Microsoft would not alter its bid and succeed, while four said they expected it to keep the price at $31 but make it a more lucrative all-cash offer.
“The change in deal terms to all cash could be the next step in this ongoing mergers and acquisition dance in our view,” UBS analysts said…