Interesting "beware" of Yahoo trading thoughts..
"Nobody knows the details of the potential alliance between Yahoo (YHOO) and News Corp. (NWS, $63), but the market is already beginning to treat it as a "merger" and is beginning to discount Yahoo along the lines of the AOL/Time Warner deal. This comes as no surprise, as the same concern
regarding multiple contraction and slower growth can be applied to an even greater extent in the case of Yahoo/News Corp.
News Corp. has even slower growth than Time Warner, and Yahoo's multiple is higher than AOL's. So, a merger would theoretically represent an even more drastic contraction for Yahoo's valuation multiple. This is why Yahoo and Jerry Yang are being so careful in the structuring of this
"alliance". Yang has said explicitly, "Yahoo wants to partner with old media outlets, but it was not interested in a merger." Nevertheless, Yahoo was down and News Corp. was up on reports of Yang's meetings with Peter Chernin, News Corp's number two executive.
The speculation is that if an agreement is reached at all, it will not be until April. If that is the case, one way investors can potentially profit from this transition period is by shorting Yahoo -- and to have both sides of this "non-arb, non-merger" deal, getting long on News Corp.
If Yahoo has a decline similar to AOL's 33% retracement after the merger with Time Warner, then Yahoo could trade as low as $112 per share." |
