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Equating Yahoo to Genentech

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Internet funds are about to be faced with reinvesting Yahoo cash into other Internet stocks.

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I'm not sure whether Microsoft's (MSFT) bid for Yahoo (YHOO) can really be interpreted as a vote of confidence in the Internet sector generally. My first reaction is that this is purely a strategic play against Google (GOOG).

Regardless of the reason, it may be a distinction without a difference. My second reaction was to remember when Hoffman-LaRoche bid for Genentech (DNA) in the early 1990's, back when its symbol was "GNE" and not yet "DNA." That was for only 2/3rds of the outstanding, and it said nothing directly about the broader industry.

But the deal did have one interesting side effect: The 2/3rds outstanding GNE was greater than the combined public market caps of the remaining industry. There wasn't a Biotech fund that did not own GNE, about to get back that cash, usually with a mandate to reinvest it in the sector.

Even after topping several years later, in what became a perfect template for tracking the Internet sector's top in 2000, the Biotech sector never looked back. To be sure, the numbers don't even begin to equate between Biotechs then and Internet stocks now. But the concept is identical, as is the MSFT/YHOO deal's ability to fuel a Internet sector bear market bounce of tradable proportion.


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No positions in stocks mentioned.
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