In rejecting Microsoft last week, Yahoo CEO Jerry Yang cited the company's investments in Alibaba and Yahoo Japan as one of the reasons Microsoft's offer of $31 per share "substantially
undervalues" the company. Yahoo has investments worth $13.8 billion in Alibaba.com Corp., a Chinese trading site, and Yahoo Japan, accounting for nearly one-third of Microsoft's offer. Analysts say
those assets could balloon to $15.9 billion by the end of the year.
Indeed, "Yahoo's stronger position in Asia is one of the rationales for Microsoft's takeover bid," said Ivan Li,
an analyst at Kim Eng Securities (HK) Ltd. in Hong Kong. Both Microsoft and Google have struggled to compete in China, where Internet advertising is dominated by graphical display ads rather than
search-based text ads.
"Alibaba is a good franchise in the fastest-growing Internet market," says portfolio manager Kevin Landis of Firsthand Capital Management. "Stubbornly, these Yahoo
shares didn't respond to that. I think if you gave it time, they would." Legg Mason fund manager Bill Miller agrees. Last week Miller, whose firm is the second-largest Yahoo shareholder, valued the
company's stock at more than $40 per share.