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Is Microsoft Really Undervaluing Yahoo?

Yahoo thinks Microsoft is undervaluing the company with its $44.6 billion offer, but Microsoft, citing the $10 boost Yahoo shares received the day the software giant took its bid to the public, thinks it's offering a fair price. So who's right? CNET surveys a few financial analysts who claim that Yahoo shouldn't expect a (much) higher price.

"We think reaching a mutual agreement would be the best way for Yahoo to potentially extract a higher bid," UBS analyst Benjamin Schachter said in a report, adding that Microsoft might be more willing to up its bid if Yahoo were at least willing to go to the negotiating table. That said, it might be too late, as Schachter says, "We think Yahoo has no choice but to enter into a deal within (the three week) time frame, as there are no other viable suitors in our view."

Meanwhile, Steve Weinstein of Pacific Crest Securities says that Yahoo's position is losing strength because of overall declines in the tech sector. "When Microsoft made its bid for Yahoo, the share price was around $20," Weinstein said, adding that given the worsening economic climate, "it's a difficult argument to make that Microsoft's offer is unfair." However, Smith Barney Citigroup analyst Mark Mahaney points out that when you estimate value based on the financial results of other Internet companies that were recently sold, including aQuantive to Microsoft for $6 billion, it's conceivable to see Yahoo being sold at between $31 and $34 per share

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