New Yahoo CEO must be willing to do Microsoft deal

By Anupreeta Das - Analysis

SAN FRANCISCO (Reuters) - To impress shareholders, Yahoo Inc's (YHOO.O) next chief executive needs just one qualification: the willingness to do a deal with Microsoft Corp (MSFT.O).

That's because this remains Yahoo's best option, short of a dramatic turnaround plan, analysts said.

But if Microsoft does eventually buy Yahoo, shareholders should brace themselves for a price far lower than the $47.5 billion the software behemoth offered earlier this year.

Wall Street analysts estimate that Microsoft would not offer more than $17-$20 per share for Yahoo, whose stock has fallen below $12 from a high of $30.25 in February.

Online display advertising, a core Yahoo business, has also shrunk as corporate advertisers scale back on Web marketing promotions amid a global economic slump.

Under Chief Executive Jerry Yang, who on Monday agreed to step down from his role once the board finds a replacement, Yahoo searched for alternatives to being bought, exploring partnerships with Google Inc (GOOG.O) and Time Warner Inc's (TWX.N) AOL unit.

But Google, which struck a search advertising deal with Yahoo in June only to abandon it as regulatory concerns grew, is unlikely to come back for more.

Meanwhile, Yahoo's months-long discussions with Time Warner about combining its AOL unit, have not led to a deal so far.