In rejecting Microsoft's $44.6 billion offer today, Yahoo's board is essentially saying the software giant's proposal isn't worth the paper it's printed on.
This story isn't over, not by a long shot.
So, what happens now? Well, Microsoft isn't talking but my feeling is this will go the route that Oracle-PeopleSoft did. Microsoft will make a counter offer, probably $40 per share or more.
Yahoo will probably demur and say that's not enough, but at some point shareholders will look at a $45 or $50 per share price as a premium too good to pass up and force Yahoo's board, through an acrimonious shareholder meeting or two, to take the deal.
It's one big waiting game. Meanwhile, Yahoo CEO Jerry Yang appealed to his employees good will by telling them "you deserve the credit for the tremendously valuable business we have built."
Now we'll see just how bad morale is at the Internet company. Will employees race for the door? Reports of Yang's reluctance to take the CEO reins last summer do not bode well for employee faith in Yahoo's leadership.
In the meantime, Yahoo has cryptically said it is exploring strategic alternatives, and some say those are with Google or AOL. That will be interesting to see. If Google does start to provide the search ads for Yahoo in place of Panama, Microsoft will probably back off. Google provides AOL's ads so I'm not clear how AOL can help Yahoo at this stage.
But does Yahoo want to scrap a multi-million-dollar engineering investment it hoped to turn the company around with? Ultimately, Yang, his team and the board will have to make those tough decisions. Microsoft can lob bids at Yahoo, and wait for the shareholders to get on Yahoo for not taking the deal.
How soon we'll see any of this make it to court is anyone's guess, but you can bet Yahoo isn't going down without a fight and will argue that it is in fine position to make a turnaround.
Meanwhile, Google would be smart to capitalize on all of the uncertainty and to take a charge at new online advertising opportunities, particularly in mobile, video and social ad market strategies for 2008. Google in the recent Q4 said it didn't play the social ad side as well as it could have. Expect them to remedy that in Q1.