The New York Times reports that the board of Yahoo Inc. (NASDAQ: YHOO) has rejected Microsoft Corp.’s (NASDAQ: MSFT) $44.6 billion takeover tender. Does Yahoo have a bigger tender in the wings? No, of course not. It’s trying to use a shaky legal argument — that the deal — which was nearly double Yahoo’s pre-deal value — severely undervalues Yahoo.

If Yahoo has so many wonderful ways to increase its shareholder value, why are they not reflected in its stock price? Meanwhile, the best short-term money making notion would be to boost Yahoo’s revenue and profit by outsourcing its search-related ad trade to Google Inc. (NASDAQ: GOOG), considering Google’s advertising technology generates far more cash for every search query, on average.

But Yahoo has resisted that move considering it invested in

Panama, which was intended to compete with Google. For Yahoo executives, replacing Panama, or other parts of its search system, with Google’s technology would be an admission of defeat.

If that is the best that Yahoo can do to reply to Microsoft’s tender, I think shareholders better hope that Microsoft doesn’t decide to just walk absent. whether it thinks that that head fake will get Microsoft to raise its tender, thereupon possibly it makes sense.

Peter Cohan is President of Peter S. Cohan & Associates. He additionally teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Original post by Peter Cohan

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