Why did Microsoft's bid 'cause Yahoo stock prices to jump?

February 1, 2008 2:43 PM

Stocks 101: Why did Microsoft's bid 'cause Yahoo stock prices to jump?

I understand basic supply and demand, but is that simply the reason why YHOO jumped nearly 50% today? Or are investors hoping to sell the stock to MSFT at an even higher price?

posted by hobbes to work & money (16 comments total)

microsoft was offering a lot more than it closed at yesterday
posted by Salvatorparadise at 2:48 PM on February 1, 2008

Shares of Yahoo will be exchanged for cash/microsoft stock at the offer price. So the Yahoo stock jumped up to that point ( or near enough ) with people wishing to make some quick money ;)
posted by petethered at 2:51 PM on February 1, 2008

Supply and demand. There is a fixed supply, but a newly announced demand for the stock.
posted by Doohickie at 2:51 PM on February 1, 2008

microsoft was offering a lot more than it closed at yesterday

If Yahoo was doing pretty badly, and Microsoft offered to buy them out at a price that wasn't so drastically different, then instead of jumping, would prices pretty much remain the same?
posted by hobbes at 3:00 PM on February 1, 2008

To be a bit more specific, Microsoft offered about 62% more per share over Yahoo!'s Friday close.
posted by Tacodog at 3:01 PM on February 1, 2008

Microsoft is offering $31 per share of Yahoo. The stock price moved much closer to $31. Still a few dollars below, since it's not certain that the deal will go through. If Microsoft were offering $41 per share, Yahoo's price would now be a bit below $41. If Microsoft were offering $20 per share (Thursday's close was $19.18), you wouldn't have seen much movement.

Microsoft didn't simply say "we want to buy Yahoo." They said, "we want to buy Yahoo, at this specific price."
posted by DevilsAdvocate at 3:11 PM on February 1, 2008

Demand: Microsoft ready to pay $X per share.
Supply: Yahoo's shares actually cost $X-62%

It's like if someone said they might be buying $50 notes for $100 pretty soon. You might draw a ton of money out of your bank in anticipation.
posted by wackybrit at 3:12 PM on February 1, 2008

Gotcha.. didn't know the bit aboot Microsoft offering at a significantly higher price.

Thanks MeFi!
posted by hobbes at 3:14 PM on February 1, 2008

Piggyback question. BAC offered 6.17 (or something close to that) for CFC when CFC was less than 6. How come it is selling for more than 7 now?
posted by ngn01 at 3:25 PM on February 1, 2008

Perhaps an easier way of explaining it is that a stock is ultimately worth what someone is willing to pay for it. When a company offers $x for another company, there's a pretty good indicator that someone is willing to pay $x for it.
posted by RikiTikiTavi at 3:49 PM on February 1, 2008

Microsoft didn't simply say "we want to buy Yahoo." They said, "we want to buy Yahoo, at this specific price."

Even when a price isn't announced, the market tends to bid up the stock to where conventional wisdom expects it to sell.
posted by dhartung at 4:00 PM on February 1, 2008

Piggyback question. BAC offered 6.17 (or something close to that) for CFC when CFC was less than 6. How come it is selling for more than 7 now?

Simple speculation. BAC's interest in CFC leads people to believe that CFC is worth more to someone than its stock is trading at.

If someone asks the ugly girl to the dance, there might be something interesting about the ugly girl that you don't know about ...
posted by Cool Papa Bell at 4:35 PM on February 1, 2008

BAC's acquisition of CFC is going to be a stock-for-stock deal. CFC shareholders are going to get a fraction of a BAC share for each CFC share they hold.

Consequently, you wouldn't expect CFC to go to any particular price. Instead, you'd expect BAC and CFC's prices to move toward the appropriate ratio as the close of the deal approached.
posted by Mr. President Dr. Steve Elvis America at 4:55 PM on February 1, 2008

If someone asks the ugly girl to the dance, there might be something interesting about the ugly girl that you don't know about ...

Y'know, you've got me thinking.. I bet you could explain most economic occurrences in terms of the schoolyard!
posted by wackybrit at 5:21 PM on February 1, 2008

If someone asks the ugly girl to the dance, there might be something interesting about the ugly girl that you don't know about ...

Or it could mean that you're so desperate to get any action whatsoever, you're willing to go with anything. Narrative fallacy!
posted by geoff. at 10:10 PM on February 1, 2008

Shoot, I wish I could edit my comment. I meant Thursday's close, not Friday. My allergies are acting up and the above was the Benadryl talkin'.
posted by Tacodog at 11:26 PM on February 1, 2008