Is MySpace Worth $12 billion?

It sure as hell might be. We’ve gotten independent confirmation of rumors circulating yesterday that discussions between Fox and Yahoo, where Yahoo would effectively buy MySpace for 25% of the stock in the combined entity, have occured. Whether Yahoo can stomach that kind of transaction right now is another matter, of course. And Fox may have less interest (or more) now that Semel has stepped down. We’re hearing that the change in leadership makes no real difference to either side right now, and that the probability of a deal remains “low.”

But if the transaction were to happen, that would value MySpace at a cool $12 billion based on the current value of Yahoo. That’s a not bad return on Fox’s initial investment of $580 million in the site (plus a few other properties), which they bought only two years ago. And it will certainly signal that other social networks, particularly Facebook, are worth far more than most people currently estimate. Remember, just last year Yahoo only valued Facebook at about $1.5 billion.

Industry analysts have been pegging MySpace stock at north of $10 billion since late last year. The underlying financials and user numbers support the deal. But is it a good idea?

Would this be a good move for Fox? Yes. Diversification away from a service that suddenly looks vulnerable to Facebook.

Would this be a good move for Yahoo? No. There is no silver bullet for their woes.

Yahoo could certainly use the massive page views and user numbers, and they could kick Google out of that search deal from last year (or also hand search over to Google, as some rumors are saying). But they need to focus on strategic acquisitions and a real game plan going forward. To try and hit one out of the park with a monster acquisition, perhaps just as the MySpace star is fading, would be monumentally stupid. Their shareholders would be much better served if they let Microsoft buy them. And their users would be much happier with a Facebook merger, or no merger at all.