Yahoo only lost 15%

On May 3 when Microsoft pulled its $33 a share offer to buy Yahoo, shareholders braced for the worst. The concern was that its stock price would head for the depths again.

At first, the fears deepened once the Yahoo shares plunged as much as 22%. One analyst even predicted a new Yahoo target price of just $17. But it turned out that Yahoo stocks closed at $24.37, only 15% down on the day. And also 30% premium to Yahoo’s stock price back in January.

Why not a bigger defeat? Reasons might include the hope that Microsoft would return with another offer and recognition that Yahoo is doing better that it was when the deal was light. The muted market reaction may give Yahoo more space than many expected to make a go as an independent company.

Yahoo Chief Executive Officer Jerry Yang declined to draw conclusions from the share performance and how it is related to the goal of helping Yahoo recapture their lost to Google. But he said Yahoo now has more going for it that a few months ago. "We have more alternatives than we had on Jan. 31," he says.

Deal is still Possible

Among the options, the possibility that Microsoft’s decision to walk away is a high risk tactic intended to tank Yahoo’s stock price and forces Yang to the bargaining table still remains.

Sandeep Aggarwal, an analyst with Collins Stewart, estimates that as much as $4 of Yahoo's stock price today can be attributed to investor hopes for a Microsoft deal.

"I hope Microsoft's pulling the deal was a negotiating ploy," says Eric Jackson, a Florida management consultant who just launched a campaign to vote against Yahoo's current directors at the next annual meeting, scheduled for July 3. "There's an expectation that Yahoo is still in play."

Some people view that Microsoft views the deal as dead but some didn’t completely rule out the possibility.

For his part, Yang doesn't rule it out either, though not at Microsoft's stated price. "If Microsoft says, 'Hey, we'll come back and meet your price,' then we'll obviously have to talk," says Yang. "There's no lack of willingness for us to explore anything that maximizes shareholder value." Yahoo's board countered Microsoft's most recent terms with an offer of $37 a share.