Microsoft still yearns for Yahoo

I suggested that Microsoft (NASDAQ: MSFT) may be back in play in late January. With the nonsense of Yang behind the company, it made sense for these two companies to re-open discussions about a merger or joint venture.

Back in December when we knew for certain that Yang was out, I wrote that Yahoo was a screaming bargain in the $10 or $11 range. At that time there were rumors of a possible lone ranger buyer coming in to circumvent MSFT's effort.

The thought was a new management team would be able to position the company for a sale at maximum price to any potential buyer. A solid balance sheet, positive cash flow and a great franchise is worth much more than the current price fetched in the market.

Although it's hard to imagine the company being worth the $30 or more that Microsoft would have paid in the first go around, a $20 target seemed reasonable. Given that a sale could happen within the year, investors today could nearly double their investment in a short period of time.

It seemed to be worth the risk in my opinion.

On Wednesday, Yahoo announced a corporate reorganization that should help provide some much needed leverage in any negotiations. The company is enduring a very difficult time from an operating perspective. Going forward it may be possible to extract value by operating more efficiently.

Earlier in the week, Microsoft made some statements that seemed to indicate that it was indeed still interested in Yahoo. And Yahoo indicated that it was indeed open to doing some sort of search deal.

Something is happening here, and whatever the outcome, shareholders should benefit. At $13 per share, there is still an opportunity here if you are speculating that a deal is finally consummated.

Jamie Dlugosch is a contributor to InvestorPlace.com.