Yahoo's Foot Dragging On Deal Could Cost Them Plenty

What is the problem? I mean, seriously. Yahoo! has been sitting on a $42 billion unsolicited offer on the table from Microsoft for two months, and other than a bunch of caterwauling since, Yahoo hasn't done much one way or the other.

I hear from a source close to the situation that top execsfrom both sides met this week in Sunnyvale to continue "informal" talks, but when Microsoftrefused to raise its offer, Yahoo refused to take the talks to the next level. And so here we sit, wondering what happens next.

I hear there's an important meeting at Yahoo coming up this Monday that will include top execs and division leaders. I'm hearing it's an all-hands-at-the-executive-level type of thing. Is this the meeting that Microsoft has been waiting for? Is Yahoo ready to throw in the towel and it's holding this meeting to notify managers that a deal is imminent?

Or, is it instead going to be a rah-rah gathering reiterating Yahoo's intention not to buckle under the 62 percent premium Microsoft is offering for the company? I'm still trying to nail this down, but don't be fooled: just because the deal hasn't been completed doesn't mean there's not a lot of backroom dramas still playing out.

A couple of things to consider here: There's been a lot of talk that the longer Yahoo delays, the more the risk is that Microsoft will walk from the deal. I don't believe that's a worry. I think Microsoft is on the hook to get a deal done, it doesn't merely want Yahoo, it craves it, and I'd be surprised if Microsoft walks. And Yahoo knows it. But more importantly, Yahoo has that pesky fiduciary responsibility to shareholders to maximize value, and that includes getting top dollar for the company, and also running that company day to day as successfully as it can. And herein lies the problem.

As the uncertainty continues, top Yahoo executives are walking out the door. Some to Google, some to startups, some just leaving with no idea where they're going next. Some Yahoo critics will argue that those execs are at least partly responsible for the hole Yahoo's dug for itself, so their departures may not be such a bad thing. But that's shortsighted. Yahoo can ill-afford a brain drain as much as it can ill-afford to leave an offer like this on the table.

I totally get it if Yahoo were shopping itself around to a large group of potential suitors. But here we are, two months after the Microsoft bid, and all we've heard is speculation about who might be out there willing to step up and take on Microsoft. Time Warner? Nothing. News Corp.? Nothing. Google ? Nope. I mean, come on. JP Morgan and Bear Stearns got a deal done in under 48 hours, from beginning to end, something Jamie Dimon called remarkable yesterday. But the two sides were motivated by desperation.

Some might argue that Yahoo ought to be motivated by the same kind of desperation and the foot-dragging the company has shown over the past eight weeks is as stunning as it is disappointing. Some insiders at the company tell me Yahoo's CEO Jerry Yang -- and the board members who support him--is letting personal animosity and hubris cloud his judgment from seeing the obvious.

Microsoft isn't merely a good option, or even the best option, some analysts say. It's the only option. With executives walking out the door, a stock going nowhere, and Google certainly not sitting still, Yang's delay is only delaying the inevitable. And reducing Yahoo's value along the way.

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