Today Silicon Valley blog TechCrunch cited sources who indicated that Microsoft and Yahoo were discussing a full buyout.

It still remains to be seen if in fact discussions are in the works.  Yahoo’s stock price bounced as investors heard the rumors that Microsoft is once-again courting the Internet pioneer.

Neither company would comment on what, if any, talks are under way, but both firms dismissed the notion Microsoft has a renewed interest in taking over Yahoo.

TechCrunch’s Michael Arrington observes that Microsoft’s “No Comment” is a change of position from yesterday.  He said,

Microsoft official comment is “no comment,” which actually contains more information than it appears to. For well over a month, Microsoft has officially been saying they’re no longer interested in Yahoo. They didn’t say that today.

We agree.  However, the Silicon Alley Insider added,

If the companies are talking about a full buyout, it is almost certainly at a price lower than the $33 Microsoft offered a month or so ago. There is no reason on earth for Microsoft to pay that much now that reeling Yahoo has dropped to $21 again. Yahoo shareholders, in fact, would probably be grateful for $25.

We think this is ridiculous for the reasons stated in the earlier post.  Financial prudence and good negotiation skills should prevail now.  We also see the “no comment” as progress.

We think that the compelling reasons for this merger are still valid and Microsoft is just playing hardball while watching Yahoo stumble.  It may be well deserved.  Jerry Yang has particularly poor negotiation skills (he is just too close to his creation), and Microsoft is probably tired of dealing with him.  Carl Icahn did not help the situation.  Carl’s sledgehammer diplomacy alienates this crowd, no matter how right he is. 

Microsoft is now walking a tightrope as they let the catch squirm in the net.  They may want to force Yang out and they may be trying to get Yahoo for a lower bid.  The former is probable, but the latter is not.  In the interim, there is an unprecedented brain drain going on at Yahoo, some is welcome, but not all. Microsoft and Steve Ballmer need to act expeditiously if they are to act at all.

Let’s look at some numbers.

Yahoo controls approximately 20% of the online advertising market which is slated to grow from $40 billion in 2007 to nearly $80 billion by 2010.  Microsoft controls about 9% today.

This implies that if Internet marketshares remain relatively constant, Yahoo’s revenue will grow from ~$8B today to $16B within 3 years.  More importantly, it implies that the cumulative gross profit for Yahoo will be somewhere just shy of $20B during the 3 year period from 2008-2010.  A combination of Yahoo and Microsoft would reduce operating expenses by approximately $1B per year making the 3 year cumulative gross profit approximately $23B.

Running these same numbers for five years yields an even more interesting story. Yahoo revenue would rise from $8B to $22B, cumulative gross profit would be $40B and reduced operating expenses would total $5B for a cumulative 5 year gross profit of $45B, or $31.28 per Yahoo share.  Just about the amount of Microsoft’s recent initial bid.

However, this is if the Microsoft-Yahoo combination did nothing more than maintain Yahoo’s market share.  We think the new combination could easily take an additional 10% marketshare away from industry leader Google during this timeframe, adding an additional $20B of cumulative gross profit.

This provides a value to this deal with a five year ROI at $45-$65B, or $31.28-$45.14 per Yahoo share.  A midpoint would be at $38.21 per share, or $55B.  Jerry Yang’s $37 per share, or $35 per share are reasonable, but we think $34.75 is the number.  $34.75 is $50B.  Good premium, fast payback, round number.

Simply stated, this acquisition pays for itself in less than 4 years.

If Microsoft offers and acquires Yahoo for $50B (roughly $34.75), they are getting a good discount for their risk while providing the Yahoo board (and Jerry Yang) a real face saving opportunity.  Quick action is needed to close a deal like this and it should be agreed to well in advance of the shareholder’s meeting on August 1st.  This deal should close before the 4th of July holiday.

• This is still a good deal for Microsoft and it’s shareholders
• It provides Microsoft with an instantaneous gain in internet advertising marketshare and synergy
• Yahoo would be wise to accept the offer immediately
• Jerry Yang needs another assignment as part of the deal
• An agreement prior to the 4th of July is good for employee retention and has a touch of patriotism
• Microsoft, Yahoo, key shareholders, and Icahn need to discuss, agree, and make it friendly
• $34.75 is not too much for Microsoft and is a reasonable value for Yahoo and it’s shareholders
• Shareholders on both sides will like it, the industry and the media can move on
• $50B is a nice round number

The new IPhone goes on sale July 11, 2008.

The new phone goes on sale in 62 countries on July 11, 2009.

The new features are:

• 3G
• Built in GPS
• Better Battery Life
• Enterprise Support (Exchange, etc.)
• Lower Price
• Black plastic rounded back (think moldable colors)
• Recessed earphone jack
• Faster email and browsing speeds

The 8GB will sell for $199. The 16GB model will sell for $299 and will have a white model.

The former First Lady, who as recently as Tuesday declared herself the strongest candidate, gave Obama an unqualified endorsement to Barack Obama.

“The way to continue our fight now to accomplish the goals for which we stand is to take our energy and our passion and do all we can to help elect Barack Obama, the next President of the United States,” she said in a speech before cheering supporters packed into the National Building Museum, not far from the White House.

“Today as I suspend my campaign, I congratulate him on the victory he has won and the extraordinary campaign he has won. I endorse him and throw my full support behind him and I ask you to join me in working as hard for Barack Obama as you have for me,” the New York Senator said.

By some accounts, Barack Obama is just 42 delegates shy of the 2,118 now needed to clinch the nomination. There are not enough pledged delegates at stake in Montana and South Dakota to put Obama over the top, but he is hoping that a rush of endorsements by the remaining undeclared “superdelegates” will allow him to claim victory when he speaks in Minnesota on Tuesday evening.

“Sen. Clinton is an outstanding public servant, she has worked tirelessly on this campaign, she has been a great senator for the state of New York and she is going to be a great asset when we go into November to make sure that we defeat the Republicans,” Obama said on Sunday in South Dakota, also stating on Monday in Michigan that “she and I will be working together.”

There is the possibility of a “dream ticket,” that is Obama as president and Clinton as vice president, but this becomes more unlikely as each day passes.  Clinton continues to lose her bargaining power each day as Obama concludes that he does not need her to attain the nomination.  In the end, neither will act in the best interest of the country or party, only in self interest.

The “dream” will only be realized if Obama believes that he cannot win the general election without her. The real question then is what will he have to give up to get her?

Clinton is expected to concede the Democratic presidential nomination to Barack Obama on Tuesday of this week.

The question is, will she still be a candidate for Vice President?

She’ll spend Tuesday evening in New York, no doubt crafting her concession speech.

“I want to say also that this may be the last day I’m ever involved in a campaign of this kind. I thought I was out of politics, ’til Hillary decided to run. But it has been, one of the greatest honors of my life to go around and campaign for her for president,” said Clinton to a crowd in Milbank, SD today.

“People have been trying to get me out of this race since Iowa and my political obituary has yet to be written and we’re going forward,” she told reporters Sunday before leaving Puerto Rico yesterday.

Obama only needs about 48 more delegates to reach what he considers to be the magic number of 2,118 delegates to wrap up the nomination.

With the final primaries over on Tuesday, we expect that Senator Hillary Clinton will concede the presidential primary race during a speech on Wednesday, June 2nd.

We also expect Hillary to be back on the campaign trail very soon.

The stated motivation for the postponement is questionable. We think it could be:

• Jerry Yang stalling for more time to make up and come to terms with Microsoft’s Steve Ballmer.
• Jerry Yang stalling for more time to beg Google for a golden escape route.
• Jerry Yang stalling for more time to avoid the brutal confrontation with Carl Icahn at the board meeting.

Whatever the motivation, we believe that something is in the works and that a compromise deal with Yahoo-Microsoft-Icahn will occur by the end of June. 

All of Yahoo’s directors are up for re-election at the meeting. Icahn’s 10 nominees include himself, Dallas Mavericks owner Mark Cuban and former Viacom Inc. Chief Executive Officer Frank Biondi Jr.  Jerry Yang will avoid this meeting like the plague.

In any event, Jerry needs to update his resume.