Yahoo! shareholders would be thrilled if the $31/share “substantially undervalued” the company but even they know it doesn’t. Lets take the fact that no-one is stupid enough to match the offer from Microsoft at $31/share because, I’d rather slate Yahoo’s “expert advisers” as they can’t come up with compelling logic to support the idea.

1. Yahoo’s stock is at a three year low. This one is probably the funniest one they could have mentioned because, everyone knows that Yahoo’s margins have been declining relentlessly in recent quarters despite continued strength in online advertising. There’s a reason its at a three year low and that’s because, its market share has been bleeding away and now its stupid management team have only just realised they could loose Yahoo! they are trying to recover and I really doubt the current management team are good enough to rectify this situation. 

2. No compensation for the risk that regulators will block the deal. Another great one since Yahoo’s stock jumped 50% on the bid, this seems a good enough compensation to me.

3. Yahoo’s leading position in display advertising. Another great one considering the fact that Yahoo has had trouble trying to get any cash-flow out of it and the fact that considering they are offloading 1000 employees this week.

Microsoft’s bid is if anything extremely generous in my opinion and here is why:

• Yahoo is currently worth about $25
• 12X 2009 estimated EV/EBITDA = $26
• 4% free cash flow yield = $21

How does the offer from Microsoft substantially undervalue Yahoo? I would like someone from Yahoo’s Management to come out with a strategic plan which is going to beat the ones that Wall Street is expecting.

I can understand the board saying its undervaluing Yahoo to pretend they are looking out for the shareholders but what they are really doing is trying to save their own asses to keep their jobs and avoid getting sued for saying “we don’t want to sell”. However, Yahoo is worth what someone else will pay for it so if Microsoft are dumb enough to go over the $31/share mark then it does not confirm the fact that Yahoo was substantially undervalued as if anything $31/share was an excellent deal.

Remember to enter mini-contest as well to ensure you are able to win a few prizes ;)

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