“While we continue to see no other competing bidders, we believe Yahoo is aggressively pursuing strategic alternatives. One possibility is a tie-up with Time Warner, whereby Time Warner would contribute its online content assets to Yahoo in exchange for a stake. We believe this could serve as a forcing function to a higher Microsoft bid,” Citigroup Inc. (C) analyst Mark Mahaney wrote in a note to clients.

Time Warner’s AOL recently made a move of its own, with its $850 million acquisition of Bebo Inc., a popular online social network. The San Francisco-based Bebo has 40 million members around the world and an especially strong presence in Britain. While social networking sites such as Facebook Inc. and MySpace.com have the American market locked up, 60% of Bebo’s traffic comes from Europe and 16% from Asia.

According to a recent report in BusinessWeek, eBay Inc. (EBAY) may be the next tech company to make a move in the M&A market. Lorraine McDonough, eBay’s mergers chief, told the magazine that her company is in a “good position to make acquisitions.”

The company kicked off 2008 with a hasty purchase of payment-security firm Fraud Sciences for $169 million. And eBay isn’t stopping there. The company expects to make eight or nine more acquisitions this year.

Despite stagnating economic growth and an abysmal credit market, high-tech mergers and acquisitions have surged 132% this year through March 25. And other sectors are likely to follow suit.

More Still to Come

Basenese believes that several converging factors will provide the “deal grease” needed to jumpstart the M&A market:

• An absence of private equity – exacerbated by the credit crunch – opens the door for corporate buyouts in the first half of the year
• A full-force return of private equity kingpins later in the year
• The devalued dollar makes U.S. companies more attractive to foreign buyers
• Stock market woes have devalued companies, making more of them takeover targets

“Many takeover targets just trade at too good a price to pass up. Adding to the urgency is the fact private equity buyers won’t be sitting on the sidelines much longer. More and more of the leveraged loans in the pipeline are being cleared,” Basenese said in an interview.

“Once those loans clear, rest assured private equity will return, making acquisitions more expensive for strategic buyers.”

Editor’s Note: Money Morning’s “Outlook 2008″ series last covered soaring coal prices and sovereign wealth funds. This is the 19th Installment of an Ongoing Series Highlighting the Global Investing Outlook for 2008.

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