Filed under: Deals, Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX)

The headline in The Wall Street Journal is “Yahoo! (NASDAQ: YHOO) Investors Seek A Savior.” But there probably isn’t one to be found.

After moving above $34 on a bid from Microsoft (NASDAQ: MSFT), Yahoo!’s shares have now fallen below $14. One would think Microsoft would come back. The company could be picked up for a song now. But Redmond is nowhere to be seen. With Yahoo!’s piece of the search market still shrinking, Microsoft may think it is not worth the capital or the risk of integrating the portal with its own MSN property.

The press keeps mentioning AOL as a merger partner. The theory is that a deal would involve Time Warner (NYSE: TWX) putting its big internet company into Yahoo! and providing some cash, perhaps $2 billion, for a third of the combined company. The trouble with that is that Yahoo!’s market cap is only $19 billion. Take away its ownership in Yahoo! Japan and China e-commerce company Alibaba, and Yahoo!’s value is well below $15 billion. Time Warner would be getting a piece of a firm with a declining stock price, so its third of Yahoo! would be worth less than $5 billion on day one. With the integration risk of marrying the two internet companies, that is not much of a prize. And what happens when Time Warner wants to sell its Yahoo! stock? It would probably tank the price.

The real key to Yahoo!’s future value is the direction of display advertising. By most accounts, the fourth quarter is not going to be very good. The economy is too rough and marketers are looking for more targeted methods of finding customers. In many cases, this involves dropping internet display ads and using links in search results.

Yahoo! may not find a savior because there is little left to save. If the company has a bad quarter and guides for a poor 2009, its stock could go to $7 or perhaps less. A flailing internet firm is really not worth much.

Douglas A. McIntyre is an editor at 247wallst.com.

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This entry was posted on Thursday, October 9th, 2008 at 11:00 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.