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Microsoft: Walking Out On Yahoo Or Saber Rattling?

Amid the news that Microsoft won't raise its bid, and therefore Yahoo won't discuss a deal, there's word now that Microsoft may walk from the deal all together.

Hmmmm, can you say saber rattling?

The suggestion of a Microsoft walk-away made headlines after Reuters went with the story that Microsoft is evaluating its Yahoo offer "in light of worsening market conditions." The headline was attributed to a single source. It was quickly followed by the headline that "Microsoft believes Yahoo value may be less than when it initially made its bid," also attributed to a single source.

Hmmmm, can you say saber rattling?

As soon as those headlines crossed, Yahoo shares promptly plunged by 5 percent. Microsoft is smart, delivering a clear message to Yahoo and the market: If you won't negotiate (read: take our offer!) then we'll give you a little taste of what will happen to your stock if you don't.

I spoke to someone inside Microsoft as this news was unfolding and this person told me there's a high degree of frustration inside the company and that this kind of rhetoric should not come as a surprise.

Even the hint of Microsoft walking from this deal was enough to head butt Yahoo shares. If the deal goes away entirely, Yahoo shares will plunge into the teens and, says one person at Microsoft I'm talking to, Yahoo's board of directors will need a snorkel and mask to keep breathing from the flood of shareholder lawsuits they'll face.

A person familiar with the situation also says Microsoft's preference has been to do a friendly transaction. It believes the time for Yahoo's board to negotiate is now, and that Microsoft still looks at the offer in the context that Yahoo's business might be deteriorating and that the company has little choice but to get a deal done.

There is also a fair amount of speculation that Microsoft will begin snapping up Yahoo shares on the open market and take control of the company that way. An analyst I'm talking to suggests that a way to get the price lower ahead of an open market acquisition of shares would be to let the news float that Microsoft is considering abandoning its plans. So far, if that's the case, the strategy appears to be working.

Hmmmm, can you say saber rattling? If Yahoo hasn't gotten the message yet, maybe a nice, Friday evening stock-smack in the face will get their attention. Let the drama continue.

Questions? Comments? TechCheck@cnbc.com

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