Investors are anticipating that Yahoo may give in to pressure from its largest shareholders to reconsider Microsoft's $47.5 billion offer, and noted conciliatory comments from its chief executive, Jerry Yang.
Alternately, Yahoo could strike a pact to outsource some of its search listings to Google to boost its performance. The two are hammering out the details of a potential deal and sharing their plans with antitrust regulators, said a person close to Google.
"There are definitely big accounts stepping in and buying Yahoo on the assumption they will get back to the table," said RBC Capital Markets analyst Ross Sandler. "If they don't, you have one other out, which is the Google outsourcing (deal)."
Yahoo Chief Executive Jerry Yang told media on Monday that he had "mixed feelings" about events over the weekend, when talks broke down, and was still open to negotiations. "If they have anything new to say, we would be open," he said. "I am more than willing to listen."
Microsoft had sweetened its offer to $33 per share, but walked away from talks on Saturday after Yang held out for a price of $37 per share.
Yang's softer stance came as two of Yahoo's largest shareholders told The New York Times they would have been happy with a deal at $34 per share.
"I am extremely angry at Jerry Yang and at the so-called independent board," Gordon Crawford, portfolio manager for Capital Research Global Investors, the largest Yahoo shareholder with some 16 percent of stock, told the newspaper.
Crawford's sway over media companies is legend. In 2002, he mounted a campaign to force the resignation of AOL Time Warner Chairman Steve Case, the architect behind one of the worst corporate mergers of its era. Case resigned in January 2003.
Bill Miller of Legg Mason Inc, which owns about 7 percent of Yahoo shares, said he was disappointed the two companies didn't reach a deal and was surprised Microsoft walked away.
Deadline for proxy fight
In an apparent effort to contain a shareholder revolt, Yahoo on Monday set its annual meeting for July 3. It said May 15 is the deadline to nominate board candidates, giving dissident investors just over a week to launch a proxy fight.
"If you lose the goodwill of some of the largest shareholders, which seems to have happened, we would expect a bloodless coup with Jerry being invited to step aside," said Sanford C. Bernstein analyst Jeffrey Lindsay.
Yahoo shares rose $1.49 cents to $25.86, partially recovering from a 15 percent drop on Monday. Microsoft rose 1.6 percent to $29.54. Despite the renewed optimism, a Microsoft executive cast doubt on the idea that talks could resume.
Jean-Philippe Courtois, president of Microsoft International, told media in London that the company has moved on from Yahoo and will focus on its own strategy to be a leader in Internet services.
Asked if that was the end with Yahoo, he replied, "Absolutely, that's the end of the story. We are moving on because our strategy is very clear."
Google deal
Microsoft courted Yahoo to capitalize on the rapidly growing market for Internet advertising, one that has long been served by Yahoo's search, e-mail and Web communities.
It is also trying to fend off the expansion of Google, which has made inroads into Microsoft's home turf with a portfolio of Web based-applications, e-mail and messaging.
A Google deal would boost Yahoo's operating performance in the near term, but runs the risk of regulatory scrutiny over an alliance between the Internet's top two players.
"If it turns out that Google was just being used to thwart Microsoft, I think investor reaction will be very negative," Lindsay said.
In a letter to Yang over the weekend, Microsoft CEO Steve Ballmer warned that any deal between Yahoo and Google would be difficult to unravel and would preclude an agreement with Microsoft.
Yang told media the company would take care to structure any such efforts to "preserve as much (as possible) long-term flexibility for Yahoo, both operationally and strategically."
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