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Not Meant To Be?


Microsoft, Yahoo fail to come to terms. Again.


There had been speculation of late that Internet stalwart Yahoo (YHOO) might wed Microsoft (MSFT) in spite of the fact the two had reached a sticking point on price in earlier talks. On Thursday that reneweed hope for a deal seemed to be nixed. According to Bloomberg, "Yahoo ended talks about a combination with Microsoft after the software maker refused to pay the $47.5 billion price it offered last month."

But the story may have a few more angles. After the close, news snippets implying a possible search advertisng deal with Google (GOOG) started dribbling out. Here's how I read it:

A deal with Google sounds great, but because I have no idea what it means in terms of dollars and cents, or even if it will come to fruition, I have to reserve judgment. That said, the fact that Mister Softee is backing away (again) isn't a good sign. It pretty much ereases the potential for a takeout in the mid-$30s.

As for Yahoo CEO Jerry Yang, he better start gathering cardboard boxes so he can pack his stuff at a moment's notice. With shares off more than two points, or roughly 10%, in regular trading Tuesday, and now more than 30% off their 52-week high, I sense his days could be numbered.

Taking it a step further, this news gives investor Carl Icahn and crew some additional ammunition in their case for installing a new slate of directors at Yahoo. It may also help convince shareholders on the fence to side with Icahn and to be more aggressive in pushing the current board to drive the stock.

If Yang and loyalists were even inclined to get out there and detail for investors why it makes sense to go it alone, they'd probably be tuned out. Not that they'll be hitting the road much in the near term. I suspect that over the next couple of weeks Yahoo's board -- and more specifically Yang -- will be besieged by inquiries about how and why they let this deal slip through their fingers.

It may be a touch early to start thinking about tax loss selling, but this news and the drop in the stock's value are at minimum a cause for concern. With the stock down this much, selling pressure toward the fourth quarter could be big. I'm now convinced there will be some serious window dressing by institutional holders.

No positions in stocks mentioned.

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