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And They're Off! Yahoo's Dark Horse Race


Laying the odds on long shot bidders.

With the Kentucky Derby a mere three weeks away, the crack Minyanville staff is in the thick of handicapping this fantastic "alternative investment" like we do each year. Our horse handicapping credentials are only second to our financial insight and acumen.

There's another horse race of sorts happening as we speak, and it's a doozie! It's the race for Yahoo (YHOO) - only the most trafficked internet site in the United States, according to ComScore.

Today's Wall Street Journal laid out a few different scenarios for Yahoo. The paper reported Microsoft (MSFT) could partner with News Corp (NWS) for this monster acquisition, while AOL (TWX) is still in the thick of things. In the mean time, Yahoo is still testing the Google (GOOG) waters (even though Jerry Yang has not shown his support) by trying Google's search for about 3% of the total Yahoo search inventory.

So with that in mind, here are some handicaps scenarios from Minyanville's Yahoo! Acquisition Derby. As with all races, you've got your favorites. The morning line favorites show the smart money is on them and the people tend to follow suit. In Yahoo's case, these are the the "horses" that would seem to be a class above the rest of the field:

Microsoft comes out of the gate strong with the salvo of $32 a share and is the odds on favorite at 2:1. The question here is distance. Microsoft would have like to run this race like a sprint so we'll have to see if it has enough in the tank to make around two turns, which this race is turning into. It's pedigree suggests that shouldn't be a problem.

Time Warner's AOL is now moving up in the standings. Like a horse with a bit of uncertainty but strong showings in its prep races, AOL could enter the big race at 12:1. We'll see how the jockey change from Parsons to Bewkes affects this race.

News Corp is always hanging around the paddock and shouldn't be forgotten. The odds of NWS entering the race and coming out victorious would start around 18:1. News Corp's jockey, Rupert Murdoch, is an x-factor as he's been known to crack the whip at just the right time and end up victorious down the stretch.

But wait
, there are a few dark horses that could (or should) jump into this race. Plus, betting the favorites is never much fun. Let's take a look at some long shots:

Comcast (CMSCA), with a market cap of $60 billion and $1 billion cash on hand, has the pipe to make a run at Yahoo. A few years ago, it's last time out, Comcast made a push to buy Disney (DIS) but might have broke too early and lost steam before the turn for home. The stock isn't that far from its five year low, so Comcast may not be that inclined to use that leverage at this point – odds 40:1

Verizon (VZ), with a market cap of $103 billion and $1.1 billion in cash would make a great jockey for the Yahoo horse. It's making a massive push for the triple play with TV, Internet and telephone (including mobile). All it needs is the content to fill the pipe and complete a big payout Superfecta – odds 20:1.

AT&T (T) has a market cap of $230 billion with about $2 billion in cash. It's doing the same thing as VZ so it would make sense as well - odds 20:1. If it was just a two horse race, we could be seeing Affirmed and Alydar all over again with VZ & T, but that's not the case.

The best scenario for the markets long term is that all the horses scratch and Yahoo wins the bidding war for Yahoo! MSN or AOL buying Yahoo is analogous to CBS (CBS) buying ABC in the 1980s, or Daimler buying Chrysler. It's not good for the markets or the momentum of the Internet. A deal with Google makes the most sense to placate rabid investors. Yahoo wants to remain independent, but needs to address shareholder concerns.

Short term investors won't want to hear this, but this is an extremely transitional time in media and Yahoo is in a great long term position to be the premier media/content channel.

Finally, the biggest long shot to win the Kentucky Derby was 91-1 Donerail in 1913 (Giacomo 2nd longest at 51-1 in 2005). In this Yahoo Derby we have one more long shot - by about 500 miles: It's Minyanville with a 99-1 shot of buying Yahoo! (99 is as high as you could go in handicapping parlance).

Get your wagers in - post time is quickly approaching.
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Position in YHOO, T
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