Will Yahoo Shareholders Accept Less From Microsoft?

Will Yahoo eventually get sold to Microsoft? And if so, for how much?

That was the chatter all Tuesday evening as Allen & Company’s confab kicked off. With Bill Gates of Microsoft and Jerry Yang of Yahoo (and Sue Decker, the company’s president) expected to arrive in the next two days, it’s just about the only thing people were talking about.

Eric Schmidt of Google rolled in late and solicited opinions at the bar Tuesday night. He has perhaps the most at stake. Several people buttonholed Gordon Crawford of Capital Research, one of Yahoo’s largest shareholders and a recent critic of the company. Mario Gabelli, another conference regular, chatted people up in the hallway.

A barbecue dinner – after a hay ride on a horse-drawn carriage – featured a group of big-media heavies: members of the Murdoch family, Robert Iger of The Walt Disney Company and Sir Howard Stringer of Sony. The dinner topics included the Microsoft-Yahoo battle.

The early verdict? The emerging consensus is that Yahoo shareholders may be prepared to take even less than the $33 per share previously proposed by Microsoft, with some whispering that they might even accept as little as $31.50 per share. And the feeling is that Carl Icahn, the activist investor who wants Yahoo to sell itself to Microsoft, would be likely to accept at such prices.

“He just needs a number that starts with a three,” one mogul said of Mr. Icahn, who paid about $25 a share for his Yahoo stake.

It’s worth noting that Bill Miller of Legg Mason, another power broker in the feud over Yahoo, is also here in Sun Valley. He runs mutual funds that own more than 5 percent of Yahoo’s stock, making him a key constituent as Mr. Icahn tries to rally support for his attempt to oust Yahoo’s board.

Reuters asked Mr. Miller whether or not he would support Mr. Icahn, and his reply also came with a number attached — one that starts with a three, incidentally: “The difficulty with Icahn is he’d have more shareholder support if he would say he wouldn’t sell the company for less than $33.”

But there’s a catch: Everyone seems to agree that Mr. Icahn will have a hard time overthrowing Yahoo’s board without a firm commitment from Microsoft’s Steve Ballmer about the price he is willing to pay. “Steve is just toying with Jerry,” one participant said of Mr. Ballmer’s statement Monday suggesting he would be interested in negotiating a deal — either to buy the entire company or to buy its search business — with a new Icahn-backed board. “It’s a no-lose. He’s creating optionality for himself.”

The way a group of moguls see it, Mr. Ballmer may be “playing” Mr. Icahn. “Do you really think Microsoft will pay $33 if Carl wins the board? Of course not.”