Yahoo! Gets Smacked by Japan Disaster

By Eric Jackson, Senior Contributor03/16/11 - 06:00 AM EDT

NEW YORK (TheStreet) - Yahoo!(YHOO_) was taken to the woodshed Tuesday morning following the overnight fear of a nuclear meltdown in Japan.

The stock touched $16.04 in early trade Tuesday after closing at $17.67 last Wednesday. The stock is being smacked down because of its ties to Yahoo! Japan. It's a major over-reaction.

Yahoo! has made it clear since its earnings call in January that it is exploring how to most tax-efficiently monetize its stake in Yahoo! Japan. Investors in the company have been calling for this for some time.

CFO Tim Morse reiterated a few weeks later to aGoldman Sachs(GS_) conference that Yahoo! was working closely with Yahoo! Japan owner Softbank on the best solution for doing this.

It appeared, based on the price action in the stock last week, that a deal between Softbank and Yahoo! was imminent, giving Yahoo!'s stock a major boost. However, the Japanese earthquake and aftermath have smacked down the stock.

Yahoo! Japan's stock was down 17% from last Wednesday to Tuesday. The biggest part of the drop came on Tuesday alone. Yahoo! Japan (ticker 4689 in Tokyo or YAHOY on the pink sheets in the US) ended Tuesday down 8.3% -- but, at the height of the panic, after the Nikkei re-opened after lunch, Yahoo! Japan was down more than 15% like the overall market over there. It rallied in the afternoon session.

There is no reason for Yahoo!'S early drop Tuesday - more than 7%, significantly more than the U.S. market -- other than following Yahoo! Japan in sympathy. That was much more severe of a drop compared toGoogle(GOOG_) or Apple(AAPL_).

One media outlet on Tuesday speculated if the large drop meant that someone knows that a deal with Yahoo! Japan is not going to happen or that a deal is much more complicated than first thought.

Everyone needs to take a pause.

Yahoo! Japan's exposure to a Japanese GDP slowdown is likely much less than other consumer discretionary names -- especially at the high-end (like Tiffany(TIF_) and Coach(COH_) -- yet it has been dumped in the same way as every other Japanese manufacturer.

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