The Microsoft and Yahoo deal is still on

Microsoft offered $33, while Yahoo wouldn't accept anything less than $37. Microsoft backs down and analysts are acting like this deal is over and are now speculating what these companies will do next. However, I think these analysts are completely missing the point.

I bet Steve Ballmer is saying, "if you really think your company is worth $37 a share, prove it." Yahoo's shares will fall, shareholders will feel the pain, and will eventually give in to Microsoft's demands. They are placing the ball in Yahoo's court for now.

Microsoft's offer is already high at $47 billion, and I don't think they can justify anything more to their shareholders. Yahoo wants an additional $6 million, which is still a big deal even for Microsoft's standards. The good thing is that Yahoo is actually naming a price which is in the same ballpark what Microsoft is offering. This signals that they are open to negotiation.

Microsoft could probably do a hostile takeover, but it could make synergies between the two companies harder afterwards, negating many of the benefits from the deal. A smarter strategy would be to walk away for now, and see if it gives you leverage in the deal.

I have two theories why Yahoo's CEO Jerry Yang is not accepting Microsoft's bid. Either he doesn't want to sell the company he spent his life running over to the dark side, he is just trying to milk Microsoft out a few extra Billion, or a combination of the two. Either way, he will be forced to give in to the pressures of Microsoft and his shareholders.

If Yahoo starts trading in the low twenties because of this news, it could provide a good arbitrage opportunity to take advantage. There is a high probably chance that Yahoo and Microsoft will eventually come to a deal.

I don't know if I will take advantage of it personally, just because I have no free cash and my investments are in other great opportunities for large gains. Although I might not be putting my money where my mouth is, I would if I could, if that means anything.