Ballmer resurrects Yahoo! deal talk; Swiss back banks; CVS extends tender

By Aaron Hochman-Zimmerman

New York, Oct. 16 - Investors watched the market spend another day at astounding volatility levels.

By the time the market was unashamedly climbing investors were caught off guard by Microsoft Corp.'s Steven Ballmer who opened the lid on the Yahoo! Inc. can of worms.

Yahoo!'s stock jumped and arbitrageurs held their stomachs in anticipation of another lap around the track for the deal that still refuses to go away.

Rather than stretching the process out by months, CVS Caremark Corp. gave one more day to Longs Drug Stores Corp. holders to tender their shares at the $71.50 per share offer price.

Across the waters, the Swiss government joined the host of banks in the developed world to offer liquidity injections and nationalize lenders.

UBS AG and Credit Suisse Group both improved as the government took action to ensure their future solvency, directly injecting cash into UBS and encouraging Credit Suisse to raise money from private investors.

Also in finance, National City Corp. fell even as rumors of a possible sale persisted.

Meanwhile, a wild ride for the Dow Jones Industrial Average ended with the index climbing back towards 9,000 as it took on 401.35, or 4.68%, to close at 8,979.26, while the Nasdaq Composite Index added 89.38, or 5.49%, to finish at 1,717.71.

The S&P 500 picked up 38.59, or 4.25%, to close at 946.43.

Yahoo! have got to be kidding me

The circus is back in town.

Microsoft's chief executive officer Steven Ballmer made the comment, in public, that a buy of Yahoo! would "make sense."

That nugget, spoken at an industry conference in Orlando, Fla., touched off a frenzy of speculation that Microsoft may return to the negotiating table with Yahoo! It also touched off a 10% spike in Yahoo!'s share price.

In the aftermath, Microsoft was compelled to release a terse statement about the situation.

"Our position hasn't changed. Microsoft has no interest in acquiring Yahoo!; there are no discussions between the companies," the statement said.

The release only gave analysts and investors more to chew on.

"It's a question of 'who are you going to trust?'" said ICAP arbitrage analyst Sachin Shah, "Ballmer or the spokesman?"

"I believe that Microsoft needs Yahoo!," he said.

The stop and start of this love-hate relationship is at least partially "related to his ego," Shah said about Ballmer.

If Ballmer did not wait for time to pass since the collapse of the last round of negotiations, "then it looks like he did something wrong," he said.

The fact that Ballmer would, in a way, begin negotiations with a comment that spiked Yahoo!'s share price "is a little confusing," Shah said, but "He made this comment, I think, as a potential open door policy," he said.

Plus, "I'm sure Carl Icahn is seeing this and getting on the horn," Shah said about Yahoo!'s new board member.

"I'm sure that they are more than willing to have the board negotiate and consummate a deal," he said.

Last chance?

After so many iterations of a Yahoo!-Microsoft tie up, it may be difficult to believe that this could be the last chance, but "there has been the rumors of a deal with AOL," Shah said.

"This could be one of the last ditch efforts to do a deal with Microsoft, before they do a deal with AOL," he said about Yahoo!

There had been talk of Microsoft buying the possible Yahoo!-AOL entity, but Microsoft may face too many anti-trust hurdles in that case, Shah said.

Microsoft would likely have to divest Yahoo!'s Asian holdings if it were to buy Yahoo! alone.

Still, this latest round of speculation comes at a severe trough in the market which may offer Microsoft its best price yet.

There has been talk that "Yahoo! should offer itself to Microsoft at $22 per share," Shah said.

At these discounted levels, despite their statement to the contrary, Microsoft "probably doesn't want to keep on buying back stock," Shah said.

Microsoft may actually want to make a deal.

Shares of Microsoft (Nasdaq: MSFT) were better by $1.53, or 6.75%, to $24.19.

Shares of Yahoo! (Nasdaq: YHOO) tacked on $1.24, or 10.55%, to $12.99.

CVS extends tender one day

CVS postponed the close of its tender offer for Longs shares by one day, through the end of Thursday.

By the scheduled close of its $71.50 per share tender CVS had only purchased 65% of Longs' outstanding shares or just shy of the two-thirds necessary to complete the transaction.

"As we previously stated, CVS Caremark's offer of $71.50 per share is our best and final offer," CVS Caremark chief executive officer Tom Ryan said in a company news release.

The proposed merger "has cleared all regulatory hurdles, is fully financed and ready to close," Ryan added.

The extension of the tender was likely "just kind of a gentle prod to the market," said SunTrust Robinson Humphrey analyst David McGee.

McGee was confident that the Longs ship would have a new captain by the end of the day on Thursday.

Shares of Longs Drug Stores (NYSE: LDG) inched up $0.16, or 0.22%, to $71.44.

Shares of CVS (NYSE: CVS) added $1.42, or 5.32%, to $28.12.

The Swiss join the fight

The government of Switzerland could no longer stay neutral in the fight against the credit crunch.

Bern injected CHF 6 billion into UBS and took $60 billion in toxic mostly mortgage-backed assets off its hands.

In return, the Swiss government now holds a 9% stake in UBS.

"In these turbulent times we want to ensure that we do everything possible to safeguard the solidity of our bank," said chairman of UBS, Peter Kurer, in a statement.

"We thank the Swiss government and the Swiss National Bank for their willingness to develop a commercial solution under economic terms that will support both the stability of the Swiss financial system and UBS," he added.

Shares of UBS (NYSE: UBS) improved by $0.67, or 4.02%, to $17.33.

Meanwhile, Credit Suisse was ordered to raise CHF 10 billion in additional capital.

The capital will come from fresh sales of equity, convertibles and debt.

Shares of Credit Suisse (NYSE: CS) jumped $4.91, or 13.06%, to $42.50.

National City slides on sale rumors

National City, long the subject of merger whispers, was on the minds of investors again.

Arbitrageurs looking for bank deals looked again at National City after its chief executive officer Peter Raskind was heard pledging the attention of his board of directors to a sale offer, a market source said.

Still, National City could not keep up with the market's late-day rally pace.

Shares of National City (NYSE: NCC) fell $0.13, or 4.08%, to $3.06.

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