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April 4, 2008, 5:03 pm

Sinking feeling at Yahoo

Yahoo (YHOO) shares fell 6% in after-market trading Friday after Reuters reported Microsoft (MSFT) is “evaluating” its $42 billion offer for the Internet company. The news agency cited a person familiar with the matter.

The comments, which suggest Microsoft is considering walking away should Yahoo fail to agree to terms, come on the heels of reports that executives at the two tech titans met this week but failed to reach an agreement on the cash-and-stock offer. Microsoft’s worried that a slowing economy and changes in Yahoo’s business stand to lower its value, Reuters reports.

Yahoo’s top brass is to meet Monday to discuss the situation, CNBC reports. It seems unlikely that either side would let the deal collapse at this point, given Microsoft’s strategic challenges in competing with Google (GOOG) and the apparent failure of Yahoo to attract any rival bidders. But Friday’s late action shows that Yahoo shareholders, who have seen the value of their investment jump 48% since Microsoft unveiled its offer on Feb. 1, are starting to get nervous.

I suppose Yahoo shareholders should be angry, but Microsoft shareholders should be angrier. This is a total waste of money, as Msft will earn nothing but short lived bragging rights from the deal. They won’t “fix” Yahoo, and will strangle it while integrating it.
Personally, I’d like to see the deal killed if no other reason than to prevent consolidation.

Posted By St. Louis, MO : April 5, 2008 10:58 am

The biggest problem for Yahoo shareholders isn’t what Microsoft does or doesn’t decide. The biggest problem, as ALWAYS, is GOOGLE, who continues to suck up Yahoo’s market share like a shlurpy at 7-11.

Posted By Chris Potter, Johnstown, PA : April 4, 2008 9:46 pm

Yahoo should reject the offer and retain their value. Anybody remember the Sprint-Nextel merger or the H-P / Compaq merger? Both of those two mergers resulted in a diminished market value for the involved companies while facing stiff competition within their industries. If Microsoft bought Yahoo, yahoo would have NO value whatsoever as the two companies’ would integrate resulting in less innovation and less market capitalization. I think Yahoo has such an innovative persona, only a company like Microsoft could put the brakes on it. A Yahoo / Google merger would be just as worthless.

Posted By Steven Hughes, Austin, Texas : April 4, 2008 7:45 pm

When my web hosting ran into problems, and I called Yahoo for support, the voice recording said the MINIMUM hold time was 30 minutes. I waited on the phone for more than 2 hours with no hope of getting any one to take the call. I finally hanged up. That’s not just a one time event. I called again a few days later, and was put through it again. Yahoo is in trouble, big trouble.

Posted By Patrick Wu, Austin, Texas : April 4, 2008 7:27 pm

What a great marriage this would be IF
Yahoo management could get out of their
sandbox and debate issues like keeping
their name/identity and stop pricing
their “toys”. Next come the class
action shareholder lawsuits!

Posted By P. McNamee, San Francisco, CA : April 4, 2008 6:58 pm

Maybe this is a strategy by microsoft. They bluffing to see how Yahoo will react. The stock price drops and Microsoft can enter in an even lower bid.

Posted By Danny, CA : April 4, 2008 6:46 pm

I agree, Yahoo was holding out for more money, it seems 42 billion in an economy heading for recession is not enough for them -_-

Posted By C, Sacramento, CA : April 4, 2008 6:45 pm

Yep, Yahoo has troubles ahead and for them to act like they are worth alot more is hard to justify especially in the tech industry where values are not totalled by actual assests like most other industries are valued by. I hate to say it but if there is a confirmation of a no buy in the future, Yahoo’s shares will plummet and many will be very disappointed with their shares. Stand strong for a little while longer Yahoo, its may just come crashing down.

Posted By Eric, Cincinnati OH : April 4, 2008 6:26 pm

If I were MSFT, I would withdraw the offer right now…wait a few days for YHOO to drop back in the teens and then reoffer in the high 20’s.

We would then see how “motivated” teh YHOO board would be to take them up on it. Note to YHOO: YOU HAVE NO LEVERAGE!

Posted By Cynthia Radigan, Baltimore, MD : April 4, 2008 6:24 pm

Agree with the previous statement. MSFT might be known for being greedy, but Jerry Yang is just plain stupid. Stupid for thinking he can spurn MSFT and Yahoo shareholders by declining an offer at a 61% premium with no other bidders. I must say I would love to see MSFT walk from teh deal and YHOO go right back down into the teens. Jerry Yang will be out of a job so quick it will make his head spin.

Posted By JB - Chicago, IL : April 4, 2008 6:22 pm

Good job yahoo.. dont sell now to msft.. let the share tank to pennies and then sell to msft

Posted By Anonymous : April 4, 2008 6:13 pm

I agree Yahoo is nothing more then a mess right now. Their Yahoo lite is a clone of google and a sad attempt at staying competative. They should just focus on using what they have and improve their all in one news/media source.

Stop trying to be the best search engine/data miner - google is already it.

Posted By Eric, Boston MA : April 4, 2008 5:34 pm

Mergers don’t work. It will be a mess, and a waste of money for everyone.

Posted By Eric, Seattle, WA : April 4, 2008 5:29 pm

HA HA! Greed is a b*tch. Yahoo management is going end up begging Microsoft to buy them for a much lower price. Say 22 a share?

Posted By Joe Braxton, Texas : April 4, 2008 5:14 pm
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Colin Barr covers business and finance for Fortune.com. Previously he was an editor at TheStreet.com and author of the weekly Five Dumbest Things on Wall Street column, and an editor at Dow Jones Newswires.
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