Pressure bursts pipes. Microsoft's (MSFT, $29.16, up $0.16) latest announcement certainly isn't the kind of pressure Yahoo (YHOO, $28.36, up $0.23) needs right now, especially if you are a Yahoo shareholder. Despite recent meetings between the two companies, no deal has been reached prompting Microsoft to basically give Yahoo an ultimatum: Take our offer or watch your share price burst.
Come Monday morning this story is likely to dominate the news and holders of the
July
30 calls (MSQGF, $1.47, up $0.03) could get a pop if Microsoft can hold onto its gains from Friday's after-hour trading session. The stock was up another 40 cents to $29.60. Yahoo was down 3%, or $0.87, to $27.49.
Microsoft has repeated many times over that it has no intentions in raising its bid for Yahoo and said on Saturday in a letter to Yahoo's BOD (Board of Directors) that if a deal was not reached by April 26th, it would launch a hostile takeover at a much lower price. Yahoo on the other hand continues to believe its business is undervalued and will apparently reiterate that point in a "response letter " on Monday.
Well, here we go again. Only this time Yahoo's shareholders could be the ones left holding the bag. Let's face it, Microsoft has every reason to stoke the fire after nearly two months of watching Yahoo sell itself to other bidders since the deal was announced. The problem is nobody really wants Yahoo. And who can blame them? Yahoo has posted
several difficult quarters and has simply failed to impress Wall Street. The weaker-than-expected earnings is the main reason why the stock had fallen from over $30 to a low of $18 before the deal was announced.
If Microsoft decides to pull the plug altogether, Yahoo's stock could easily drop to the low teens in my opinion. In
early February when I recommended the Microsoft July 30 calls, they were trading for $1.75. Since then, the calls have traded as low as $1.25 to a high of nearly $2.00. If Microsoft can crack $30 on Monday or even this week, it could set the stage for a run back to $33-$35 which would probably get us a double on the call options.
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