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Analysts: Yahoo and Microsoft likely to synch up this week

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As Yahoo gears up to report its first quarter performance next week, one analyst predicts the Internet search pioneer may clock in at the lower end of its revenue range, while other analysts predict a buyout deal with Microsoft may be in the mix this week.

UBS Securities analysts predict the Internet search pioneer will likely saddle up with Microsoft in a buyout deal valued in the range between $32 to $35 a share.

UBS analysts Benjamin Schachter and Heather Bellini noted they wouldn’t be surprised if the two companies entered a deal this week, citing several drivers.

In part, the analysts, citing a discussion with litigation attorney Glenn Manishin of Duane Morris LLP, predict Yahoo’s antitrust concerns in hooking up with Microsoft are largely unfounded, giving it a mere 15 to 25 percent chance regulators would block the deal.

Yahoo, in its response letter to Microsoft’s three-week ultimatum to do a deal, noted it was deeply concerned about antitrust regulators’ views on a merger between the two companies and was still awaiting word from Microsoft on some of its questions regarding the topic.

Yahoo’s first quarter earnings report on April 22 may serve as another driver, given the Internet search pioneer is not likely to dish up any surprises of a stronger than expected performance.

“The company recently reiterated guidance, but given its wide range and management’s track record, it’s difficult to give them the benefit of the doubt for much of an upside surprise,” Schachter noted in his research note. “The stock will continue to trade on deal expectations.”

Yahoo’s management gave Wall Street a revenue range of $1.28 billion to $1.38 billion for the first quarter.

A consensus of Wall Street analysts is forecasting Yahoo will bring in first quarter net income of 9 cents a share on revenues of nearly $1.33 billion, according to Thomson Financial.

Other analysts note it wouldn’t be surprising if Yahoo’s revenues come in on the lower end of their range.

“During the quarter, the Microsoft transaction has been a distraction and expectations are not wildly optimistic for a strong performance in the quarter,” noted Derek Brown, an analyst with Cantor Fitzgerald.

Taking a wider view of the overall Internet and advertising landscape, Schachter noted in his research note that he expects a number of companies that he follows will “set a cautious tone for the remainder of 2008.”

Said Schachter: “We find it very difficult to see how companies that rely on advertising and consumer commercial activity can escape unharmed in a broader slow down. So while advertisers will likely focus more of their overall dollars on highly measurable and targeted methods, we still think that as overall budgets are impacted, online budgets will likely grow noticeably slower than they would have without the macro weakness.”


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