Daring Fireball Linked List: May 2008

Daring Fireball: Icahn Launches Yahoo Challenge

The problem with Icahn’s argument is that Yahoo’s stock price remains significantly above where it was prior to Microsoft’s offer. Yes, it’s still below what Microsoft offered, but not by much.

And the problem with this argument is that Icahn has been propping up Yahoo's stock by buying significant chunks of the shares. If you look at Yahoo's stock since the Microsoft deal collapsed, you can clearly see places where automated buying was kicking in every time the stock tried to drop below a given price point, and buying that was grabbing significant chunks of stock. In retrospect, it was clear Icahn (and probably others) were grabbing on weakness, but not letting the stock get too weak so that others might step in first. So the real question is "where would the stock be if Icahn wasn't buying all available shares?", and secondarily, if he changes his mind and liquidates, what will that do to the stock price? answer to these questions is far from positive for Yahoo. And the current stock price is not so much because that's where Yahoo ought to be, but because there are a bunch of investors seeing a profit to be made. If that ability fades and they all liquidate their holdings, watch out. Where would Yahoo's stock be? Certainly not $27 where it is now. Not $19, which is where it was when Microsoft walked in (but which, to me, was an over-reaction down that Microsoft saw as an opportunity) -- but $22? I'd bet on something around there. And frankly, if Icahn wasn't buying up available shares around $25, then some other shark would be buying them at $23 and willing to take a profit at $28 instead of $31. Even if Yahoo fights off Icahn (and few companies succeed there without losing at least an arm), there's another person like him who'll likely step in at the next price point down..