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Yahoo A Buy At $26?

Is Yahoo--whose stubborn insistence that Microsoft pay a "fair" (read: higher) price caused the tech giant to walk away from a $47 billion bid for the company earlier this month--a "buy" at just under $26 per share? The stock is trading down 26% from its 52-week high of $34.08 on Oct. 29, 2007, but BusinessWeek said the stock is apt to fall even further, as it becomes less and less likely that Microsoft will return with another offer. Once Microsoft is perceived to be totally out of the picture, the stock could fall back as far as $19 per share, the report claims, which would make it look all the more attractive to potential suitors like News Corp. and, yep, even Microsoft.

Larry Haverty, a portfolio manager at Gabelli Global Multimedia Trust, which owns shares in both Yahoo and News Corp., said he's certain a Microsoft-Yahoo deal will ultimately get done, because it's the only way the two companies can compete with Google in online advertising. Meanwhile, a partnership or merger with Time Warner's AOL, News Corp.'s Fox Interactive Media, or a search deal with Google are other possibilities. That said, shareholders and analysts tend to agree that these are second-rate options compared to a Microsoft acquisition.

The longer Microsoft stays out of the picture, the more the takeover premium that boosted Yahoo's stock will erode. So, is Yahoo a "buy"? It's hard to say. On the one hand, Jerry Yang and the board need to do something soon to raise Yahoo's value-and a Microsoft deal is probably still the best thing. On the other hand, if shareholders start suing the company, in which case shares will decline

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