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Yahoo's Rock and a Hard Place

Talk about a tough position for Yahoo. The company is swiftly painting itself into a difficult financial corner and may find itself with no way out.

Yahoo
CNBC.com
Yahoo

On the one hand, a $41 billion offer from Microsoft . The day that offer was announced, it worked out to a 62 percent premium for Yahoo shares. Not a bad deal. I, along with so many others, looked at the deal with raised eyebrows. Why would Microsoft want to offer so much for a company seemingly on the ropes. The answers were simple enough: A pre-emptive offer to scare away any other suitors; a Murdochian kind of deal that closes the door to any potential bidding war.

It's been anything but simple since: Along the way, Microsoft has sung the same tune: No reason to raise its offer since its opening salvo was so high to begin with. No way Microsoft raises the bid. In fact, lately there's been the threat that it could actually lower the bid instead.

Yahoo's fiduciary responsibility seems clear. Take the deal.

Or should it.

I ask, because along the way Yahoo has made the case that the Microsoft bid, sweet as it might be, significantly undervalues the company. Yahoo's roadshow may not seem compelling to all, but it does seem compelling to some. More specifically some key institutional investors who hold healthy stakes in the company. They're buying into Yahoo's growth projections that were detailed Monday in Yahoo's response to Microsoft's deadline threat.

Says Yahoo to Microsoft: "In contrast to your assertions about the effect of general economic conditions on our business, Yahoo!'s business forecasts are consistent with what we outlined in our last earnings call. As you know, we recently reaffirmed our Q1 and full year guidance, which is a testament to our ability to perform in line with our expectations despite the current economic environment. In addition, our three-year financial and strategic plan which we have made public demonstrates significant potential upside not previously communicated to the financial markets. This plan has received positive feedback from our stockholders, further strengthening the view that Yahoo! is worth well more as a standalone company than the value offered in your proposal, and would be even more valuable to Microsoft. Your own statements have made clear the strategic importance of Yahoo!'s substantial assets and capabilities to Microsoft."

Why is this all significant? Because the hubris I have attached to the executives in Sunnyvale may have not been the entire story. I still think there's a healthy amount of hubris and animosity toward Microsoft, but Yahoo's executive team may also be worried about their own shareholders. I'm told tonight that one of the key reasons why Yahoo hasn't jumped on the Microsoft offer is because significant shareholders buying into Yahoo's growth projections have threatened suits of their own if Yahoo takes the deal on the table from Microsoft. This is the first I've heard of this.

But Yahoo could also face suits from shareholders worried that Yahoo could blow the deal from Microsoft.

Undervalued? Fairly valued? Over-valued? Damned if you do, damned if you don't. Did Yahoo blow it already? I suppose we'll know more in three weeks. Or the day of the company's shareholder meeting, whenever that might be.

Questions? Comments? TechCheck@cnbc.com

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