Yahoo shares surge on prospect of buyout

NEW YORK Thu Oct 14, 2010 3:11pm EDT

A Yahoo! billboard is seen in New York's Time's Square January 25, 2010. REUTERS/Brendan McDermid

A Yahoo! billboard is seen in New York's Time's Square January 25, 2010.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Shares of Yahoo Inc jumped more than 9 percent on Thursday, fueled by the prospect that the Internet company could be the target of a buyout by private equity firms, possibly in conjunction with another media company like AOL Inc or News Corp.

Yahoo's shares surged above $17 in premarket trade, but stood at $16.72, up $1.47 or 9.6 percent, shortly after regular trade began on the Nasdaq. The $16.72 level represented the stock's highest mark since early May.

Yahoo's jump comes after a source said on Wednesday that several private equity firms have approached media companies including News Corp and AOL about a possible acquisition of Yahoo.

In a note to clients, Justin Post, an analyst with Bank of America Merrill Lynch, said private equity interest in Yahoo "makes sense" considering its current valuation, but added that finding a media partner for a deal "could be difficult given that most big media players have not had good experiences with Internet assets."

He added that the stock would be fairly valued around $18 a share and that investors should not chase the company much above that in light of "significant hurdles" to clinching a deal.

So far, Yahoo, the world's No. 2 search engine and a company that is struggling to revive revenue growth, has not yet been approached by the private equity firms, according to the source who revealed the talks.

Another source said Silver Lake Partners was among the firms in very preliminary discussions about acquisition scenarios.

While Yahoo's stock jumped on Thursday, News Corp shares were steady at $14.18 and AOL shares were up 2.6 percent at $25.77.

(Reporting by Paul Thomasch, editing by Matthew Lewis)