Now that Microsoft has withdrawn it's bid, the pressure is on Yahoo to prove it can revive its languishing stock price.
Yahoo's talks with Rupert Murdoch's News Corp on an alternative deal to Microsoft's takeover bid have "cooled" in recent weeks, one source familiar with the matter said Sunday.
There were no indications that the situation had changed this weekend, after Microsoft abandoned its offer to buy Yahoo for as much as $33 per share, or $47.5 billion.
Microsoft withdrew its offer on Saturday, after balking at Yahoo's request to raise the bid to $37 per share.
Meanwhile, at least one Yahoo shareholder, Eric Jackson said Sunday he plans to launch a campaign urging Yahoo shareholders to withhold their votes from all Yahoo directors at the company's annual meeting, because the company failed to cut a deal with Microsoft.
"Significant value was left on the table yesterday at the meeting in Seattle," Jackson said in a telephone interview, adding he and several other shareholders were surprised and disappointed at the outcome of the talks.
Jackson leads "Plan B," a group of about 140 shareholders who collectively own 2 million Yahoo shares. The group was the first to speak out against Yahoo's expected rejection of Microsoft's offer. Jackson has been one of the most outspoken critics of Yahoo's strategy.
With these pressures Yahoo must quickly assemble an alternative solution, analysts said, or else the Internet company will likely see its shares plunge Monday and face a spate of shareholder lawsuits.
Last June, Jackson became the star of Yahoo's annual meeting where he led a move to challenge the direction of the company.
At the meeting, Jackson accused the then chairman and CEO, Terry Semel, of mismanaging the company and failing to do more to revive its stock price.
Jackson, who runs investment firm Ironfire Capital, had spearheaded a move at the meeting against board-nominated directors. The campaign resulted in a hefty minority vote against the re-election of Semel, who stepped down as CEO a week later, and Roy Bostock, the current board chairman.
In February, Jackson was also the first among Yahoo shareholders to speak out against Yahoo's expected rejection of Microsoft's offer. At the time, the Plan B group offered to sell their shares to Microsoft or the highest bidder.
But Jackson doesn't think a partnership between Yahoo and Google , which would center on Yahoo displaying advertising from Google along with its own search results, would pacify shareholders. Yahoo could announce such a deal with Google in the coming week, a person familiar with the discussions told Reuters earlier.
Microsoft's offer still provides the best value for Yahoo, Jackson said.
"The bottom line is that shareholders need some new representation," said Jackson, who plans to launch his campaign via the Internet in the next few days.
It's unclear if Yahoo would be able to attract a better offer than the one Microsoft had made.
The apparent cooling of interest on News Corp's part would narrow the field of options for Yahoo to Time Warner's AOL, which some analysts say is unlikely to appease Yahoo shareholders awaiting a big pay-off akin to Microsoft's offer.
In recent months, Yahoo has held discussions to merge with News Corp's Fox Interactive Media, as well as held separate talks to merge with AOL, sources have said. News Corp had also held discussions with Microsoft for a joint bid to buy Yahoo, the sources have said.
A deal with AOL, which outsources its search advertising to Google, would only increase Yahoo's reliance on Google, analysts said.
"I don't think (a deal with AOL) improves Yahoo's position. It increases dependency on Google," said Jordan Rohan, founder of digital media advisory firm Clearmeadow Partners.
"A Yahoo-AOL merger would have much of the integration hassles of a Microsoft-Yahoo merger, without the payoff to Yahoo shareholders," he said.