Temperature's Rising At Yahoo!

The weekend's move by Microsoft to pull back on their offer to acquire Yahoo! leaves both camps with more questions than answers.

Yahoo's intransigent position to raise Microsoft's offer by five billion dollars forced Steve Ballmer to withdraw from the bargaining table and watch Yahoo's shares plummet by almost as much the next morning, leaving Yahoo! with a staggering seventeen billion dollar gap between its market and asking price of thirty seven dollars.

The drama is sending shock waves through both investors and Yahoo! employees, defenseless in a battle between the titans, Ballmer and Jerry Yang. If Microsoft stands firm on its withdrawal, Yahoo! stock may well lose another four or five billion in market capitalization, spiraling into a host of stockholder lawsuits.

Ballmer, on the other hand, may face a fate that forces him out, failing to secure a winning strategy in pursuit of Yahoo!, unless a very expensive and numbing hostile takeover scenario emerges.

Should Yahoo! decide to outsource their search activity with Google, it may save face and buy time for Yang to bolster the stock. Yahoo's search strategy has not been successful ... in fact, they lost that battle a while ago. To assume they can get back on track would be a major blunder.

If Microsoft does not prevail at a thirty four dollar bid, Yahoo's only alternative would be outsourcing search to Google, defeating further action by Microsoft.

Stay tuned.

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