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Yahoo to MS: Drop the nudnik, maybe we do a deal

The latest "no" is more of a "yes" when you read the fine print. But Carl Icahn's continued role remains a stumbling block for Yahoo.

The headlines this evening report yet another Yahoo rejection of an offer to sell its search business to Microsoft. But the wording of the latest chapter in the epistolary negotiations between these companies drops intriguing hints about a possible denouement.

On the surface, this latest rebuff sounds like a recapitulation of Yahoo's previous rejections. But that's painting with too broad a brush. Consider the following:

Yahoo's Board points out that a transaction to acquire the whole company would be much more straightforward and involve far less risk than the new proposal or any similar alternative. The Board believes a whole company transaction could be negotiated and executed prior to August 1st. In rejecting the Microsoft/Icahn proposal, Yahoo not only repeated its offer to sell the entire Company to Microsoft for at least $33 per share, but also offered to negotiate an improved search only transaction. Microsoft rejected both offers.

In other words, just figure out a way to come back with a serious proposal that doesn't have Carl Icahn's fingerprints and maybe we can finally do a deal. Of course, that's easier said than done. The public statement put out late this evening portrayed Icahn as a mischief maker, describing his alliance with Microsoft as "odd and opportunistic."

After negotiating among themselves without the involvement of Yahoo, Carl Icahn and Microsoft presented us with a 'take it or leave it' proposal under which we would be required to restructure the Company, hand over to Microsoft Yahoo's valuable search business and to Carl Icahn the rest of the Company, giving us less than 24 hours to respond. It is ludicrous to think that our Board could accept such a proposal. While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.

Still, that's a long way from where the Yahoo-Microsoft negotiations were last month after the announcement of the Google search deal. A lot has been made about founders Jerry Yang and David Filo supposedly being hell-bent on keeping control without sufficient regard for shareholders. Whether there was any truth in that depiction no longer matters. Yahoo's management now can envision a future with Microsoft.

The wild card here is Icahn. Yahoo's board has no intention of committing ritual hara-kiri, let alone hand over the company to someone they see as a billionaire nudnik. Chairman Roy Bostock and his colleagues don't believe Icahn has a clue how to run a complicated technology company. (You know what? Icahn probably agrees. Anyway, he would let his proposed slate of directors figure that one out.) Yahoo's right about this much: Any partial sale to Microsoft would take several months--perhaps up to a year--to allow regulators to pore over the fine print. Is Icahn's proposed team good enough to navigate through the shoals until all those details got sorted out? From Yahoo's perspective, it's just a lot cleaner to sell the entire kit and caboodle.

At a higher price, naturally.

The latest "no" is more of a "yes," but does that suggest a successful outcome is in the cards? Hardly. If these two sides had been in charge of the Normandy invasion, they'd be speaking German in France today. Maybe what's needed now is a Henry Kissinger-like mediator to help them do what they both seem to want to do next.