A Hard Sell for Microsoft

By Jon Najarian

The showdown Feb. 3 between the New England Patriots and the victorious New York Giants may have been the most-watched Super Bowl ever with 97.5 million viewers, but I'm willing to bet that more people are eagerly watching how Microsoft's (MSFT) hostile $44.6 billion bid for Yahoo! (YHOO) plays out.

The announcement on Feb. 1 took many on Wall Street by surprise, but not me. Our HeatSeeker system showed an interesting buy-and-hold pattern in the company's options.

Yahoo! announced quarterly results on Jan. 29, just a few days before the takeover bid was released, and its trading activity understandably increased just prior to, and right after, its earnings release. What I found especially compelling was not that we saw unusual buying of the YHOO calls ahead of the earnings announcement but, rather, that a significant number of traders held those positions, even as YHOO toppled nearly 12% in the wake of earnings.

It makes me wonder who knew to hold onto them in anticipation of the takeover announcement. By Feb 1, YHOO options were trading more than eight times their normal levels.

What is clear, though, is Google's (GOOG) criticism of the deal. The company has launched a PR campaign to highlight what it calls "troubling questions" about Microsoft's actions. Google's Senior Vice President blogged about it over the weekend, asking, "Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC?"

Google then made a "friendly" offer to help Yahoo! thwart Microsoft's hostile bid.

As of now, the only deal on the table is Microsoft's offer to pay $31 a share in cash and stock for Yahoo! in what would be the biggest Internet deal since the Time Warner-AOL merger in 2000.

While this proposed takeover raises a lot of questions, it actually signals an answer of sorts to me: When Microsoft makes its biggest purchase ever -- especially if Wilbur Ross and Warren Buffett are getting involved -- the market may be closer to a bottom than people realized.

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Jon Najarian is the editor of ChangeWave Options Trader. Step into trading with Jon and learn how to make great trades with his step-by-step directions. Click here to start trading with Jon today.

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