All Things Digital

Good thing so rarely a correlation exists between a company’s public announcements and its corporate actions. Otherwise, it might be tough to parse Microsoft’s recent comments about future acquisitions in light of some rumors floating around Silicon Valley today.

While touring Japan this week, company Chairman Bill Gates told a news conference that Microsoft (MSFT) isn’t likely to pursue other deals following its withdrawal of its ill-starred takeover bid for Yahoo (YHOO). Said Gates, “Now at this point Microsoft is focused on its independent strategy.”

Windows Live General Manager Brian Hall echoed that sentiment at an analyst meeting yesterday: “We’ve withdrawn the offer and moved on, and now are focused on how we grow as fast as possible organically.”

Seems this whole Yahoo debacle has put Microsoft off acquisitions entirely. Or has it? As first reported by BoomTown’s Kara Swisher, Microsoft recently contacted Facebook to gauge the Internet company’s willingness to sell it the 98.4% of the company that it doesn’t yet own. No word on what Facebook’s reply was, although CEO Mark Zuckerberg has long said he’s not interested in selling the company. And even if he were, Facebook doesn’t exactly solve the problems that Yahoo would have. It’s hardly a viable source of online advertising …

There’s a reason why we’re the only Fortune 500 company with an exclamation point at the end of our name, and now is the time to demonstrate what that exclamation point stands for.”

–Yahoo CEO Jerry Yang

The market is finally having its say about the collapse of the Microsoft-Yahoo deal and its words are far from kind. Shares of Yahoo (YHOO) plunged some 21% in premarket trading this morning after Microsoft (MSFT) abandoned its takeover bid, wiping out about $8.7 billion of the company’s market value. Yahoo’s current premarket price is about 30% below Microsoft’s final offer of $33 a share, which the company deemed inadequate.

Meanwhile, investors are eyeing the market’s opening with a dark, albeit bemused, cynicism–as well as a little wish-it-were-so fancy. From the YHOO message boards this morning …

Fed Opens Yahoo Lending Facility

In response to recent events [the] Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a Yahoo Lending Facility (YLF) to avoid significant stock market disruption and to support Yahoo Inc. shares. Yahoo Inc. and its authorized agents will be able to borrow from the facility to support stock price.

This facility will be available for business on Monday, May 5. It will be in place for at least six months and may be extended as conditions warrant. The interest rate charged on the credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.

In addition, Yahoo Inc. shareholders who are unable to sell their shares at or above Friday, May 2 closing price, will be able to swap Yahoo shares for the U.S. Treasuries at the set price of $29.70 per share.”

UPDATE:

A few moments after market open, Yahoo is down 17.2% to $23.79. Microsoft is up a little over 2% to $29.83.

“We know what Yahoo’s worth,” Microsoft CEO Steve Ballmer said last week. “$44 billion is a lot of money.”

But it’s not as much as $46 billion, which may be what Microsoft (MSFT) feels Yahoo (YHOO) is worth today. “People familiar with the matter,” who are no doubt collecting a Microsoft paycheck, tell The Wall Street Journal that Microsoft’s board of directors is meeting today to plot the company’s next move in its ridiculously prolonged acquisition standoff with Yahoo. Among the options the board is considering: sweetening Microsoft’s bid to as much as $32 or $33 a share. Which is $2 or $3 less than the figure Yahoo’s major shareholders are said to be seeking.

Yahoo’s exploratory advertising deal with Google has given it an alternative to Microsoft’s unsolicited takeover bid after all–the possibility of a federal antitrust investigation. The Justice Department is reportedly examining the companies’ dalliance amid concerns that it violates antitrust laws.

Which isn’t surprising at all, really. Together, Yahoo (YHOO) and Google (GOOG) control more than 80% of the U.S. search market. And as Microsoft (MSFT) general counsel Brad Smith will happily tell you, that’s anti-competitive. And he’d know, right?

Now here’s something you don’t hear every day: Google is losing search market share to Yahoo in the states. According to a new quarterly study by SEO outfit SearchIgnite, spending by search advertisers on Google (GOOG) slipped to 70.4% (down from 74.5%), while spending on Yahoo (YHOO) grew to 24.2% in March from 19.6% at the end of the fourth quarter. Breaking it down month-by-month, Yahoo saw gains of 79.2% in January, 37.3% in February, and 43.9% in March.

A surprising trend, given the general state of affairs over at Yahoo recently and one that may, may, bode well for the first-quarter results the company is due to report on April 22. In the face of Microsoft’s (MSFT) hostile takeover offer and its claims that Yahoo’s business is on a fast downward spiral, Yahoo CEO Jerry Yang has insisted that the company will meet its first-quarter projections.

That may well be the case, if SearchIgnite’s metrics prove accurate. Said Roger Barnette, president of SearchIgnite, “If these numbers are an accurate reflection of the market, it could lead Yahoo to surpass expectations.”

Meanwhile, spending by search advertisers on MSN declined to 5.4% from 5.9%, quarter over quarter. No wonder Microsoft wants Yahoo so badly.

Much as Yahoo’s (YHOO) second largest shareholder, investment firm Legg Mason, may view Microsoft’s (MSFT) threatening letter as a boorish tactical blunder, the company seems willing to back its proposed takeover of Yahoo at the right price.

“If Microsoft raises the offer, the pressure shifts very quickly to Yahoo to negotiate,” Legg Mason portfolio manager Bill Miller told The Wall Street Journal. “To me, bumping the number up a buck [from $31 a share], that would have a big impact psychologically on shareholders. … If Microsoft lowers the price, I’m not prepared to say that’s better than Yahoo remaining independent.”

But you are if Microsoft “bumps it up” to $32, right?

Yahoo (YHOO) has replied in kind to the acquisitive saber rattling of Microsoft’s (MSFT) weekend letter–albeit with a less menacing saber rattling of the plastic butter knife sort.

In a public letter to Microsoft CEO Steve Ballmer (addressed “Dear Steve”), Yahoo said it’s not opposed to a deal with Microsoft; it’s just opposed to a deal at the current price. “Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders,” Yahoo CEO Jerry Yang and Yahoo Chairman Roy Bostock wrote, adding that the decline in Microsoft’s share price has made the company’s takeover offer even less attractive than it was when Yahoo first rejected it. “As a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal,” Yang and Bostock argued.

That’s an apt parry to Ballmer’s suggestion that worsening economic conditions have reduced Yahoo’s market value, making the large premium Microsoft offered for the company in January even more significant today. But just how is Yahoo faring in the current economy? That’s the real question here, isn’t it? Yang and Bostock say the company’s “business forecasts are consistent with what we outlined” after releasing its fourth-quarter results. And that’s not really saying much at all, is it, as Silicon Alley Insider notes:

If Yahoo had wanted to torpedo Microsoft’s latest assault, it could have published a revenue figure for the quarter showing that its revenue came at the high end of its forecast range. If it could have done this, we think it probably would have (or at least should have).

“Instead, Yahoo said that its quarter and outlook are ‘consistent’ with previous forecasts. However, the previous forecasts cover such a wide range that this statement is almost meaningless.”

Asked during a February earnings call whether News Corp. might entertain the idea of a MySpace-Yahoo alliance, company Chairman Rupert Murdoch replied: “I think that day has passed, but you never know.”

Well, now that he’s had about a month to think about it, Murdoch seems more certain that day has passed. In remarks at the annual Bear Stearns media conference today, Murdoch said News Corp. has no plans to battle Microsoft (MSFT) for Yahoo (YHOO). “We’re not going to get into a fight with Microsoft, which has a lot more money than us,” Murdoch said.

Assuming Murdoch’s on the level, this is lousy news for Yahoo, which had been discussing a partnership with the media company in the hopes that it might thwart Microsoft’s unsolicited takeover bid. With News Corp. bowing out of discussions, Yahoo’s already limited options for avoiding a Microsoft takeover have dwindled to two: cut a deal with AOL or go to the mat with Microsoft in a proxy battle.

Cue the Jerry Yang sad trombone effect …