Microsoft Walks, Yahoo Shares Tumble

Microsoft withdrew its bid for Yahoo after negotiations fell apart this weekend. Analysts, who were stunned by the news that Microsoft didn't meet Yahoo's absurd demands for $37 a share, were tripping over themselves to downgrade the stock to a "sell." Regular readers of mockthemarket, however, weren't shocked by this news as I noted in a story on April 28th that Microsoft clearly had the upper hand in negotiations. Growth in Yahoo's search business is lagging Google's by a significant margin. Meanwhile, investors only thought the company was worth $19 a share before Microsoft's bid. $33 a share was a gift to Yahoo's shareholders and Microsoft knew that. It's why Steve Ballmer reiterated in the press several times that he was not going to raise his bid by a substantial amount. Now Jerry Yang has the difficult job of trying to prove to investors that turning Microsoft away was the right thing to do. If Yahoo's future earnings fall short of Yang's somewhat overzealous predictions, Yang may be looking for another job before the end of the year.