Microsoft dumped its offer to buy Yahoo on Saturday. A closer reading of Microsoft CEO Steve Ballmer’s letter to Yahoo’s Jerry Yang shows Microsoft is content to do nothing less than choke the air supply out of Yahoo’s trachea.

Consider these sweet bon mots in Ballmer’s letter, which is also a thinly veiled salvo at Google:

We regard with particular concern your apparent planning to respond to a “hostile” bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today. In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons:

– First, it would fundamentally undermine Yahoo!’s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them.

This would undermine the reliance on your display advertising business to fuel future growth.

– Given this, it would impair Yahoo’s ability to retain the talented engineers working on advertising systems that are important to our interest in a combination of our companies.

– In addition, it would raise a host of regulatory and legal problems that no acquirer, including Microsoft, would want to inherit. Among other things, this would consolidate market share with the already-dominant paid search provider in a manner that would reduce competition and choice in the marketplace.

– This would also effectively enable Google to set the prices for key search terms on both their and your search platforms and, in the process, raise prices charged to advertisers on Yahoo. In addition to whatever resulting legal problems, this seems unwise from a business perspective unless in fact one simply wishes to use this as a vehicle to exit the paid search business in favor of Google.

– It could foreclose any chance of a combination with any other search provider that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.

We are eagerly awaiting Google’s response.

Meanwhile, Global Equities Research analyst Trip Chowdhry advances speculation — based on discussions with his industry contacts and applying game theory to his analysis — that Ballmer has masterfully played his hand to block Yahoo from a merger with Amazon.com.

Chowdhry thinks that Microsoft’s deal to buy Yahoo would likely be blocked by the Department of Justice, given its experience in 1995 with a deal to buy Quicken software-maker Intuit, when the DOJ did just that. At the time, Microsoft Money was the fourth biggest player.

Chowdhry: Yahoo’s management should make sure it does not fall into the trap of a potentially fake bid, as Microsoft itself probably may be knowing that the chances of a deal going through is unlikely, and the outcome could be similar to 1995, when DOJ blocked Microsoft’s acquisition of Intuit. We think Yahoo should hire Game Theorists to get insight into Microsoft’s both tactical as well as strategic moves.

(Photo: Reuters)

Talk about passing the buck.

During a panel discussion on media and entertainment at the Milken Institute Global Conference on Wednesday, former Yahoo! CEO Terry Semel swiftly deflected questions about the Internet company’s current pickle with Microsoft to his fellow panelist and Yahoo! board member Activision CEO Bobby Kotick.

Asked by moderator Dennis Kneale of CNBC how Yahoo had gotten itself in the position of being courted by Microsoft, Semel pointed to Kotick, who was sitting next to him.

“Ask the board member,” he said.

But Kotick wouldn’t bite. In fact, he said nothing at all.

Later on, Kneale tried again, asking another panelist, News Corp. President Peter Chernin, to tell Semel and Kotick what Yahoo! should do in response to Microsoft’s $44 billion bid.

“Can you tell us what Yahoo should do with itself?” Kneale pleaded.

Chernin also deferred to Kotick, who again said nothing. When pressed by Kneale to give the Yahoo board member his advice, Chernin finally gave a response that could only be characterized as diplomatic.

“I have no advice for Yahoo!, it seems to be doing just fine,” he said.

Semel gave a similarly deferential response when asked by Kneale whether News Corp. should spin off a portion of its MySpace business to the public.

“It’s a very good asset and I’m sure ultimately he will find a better way to monetize it and bring more and more advertising,” Semel said.

And they all lived happily ever after.

Time Warner Inc’s plan to split off its cable services division – widely expected by many and welcomed by some — raises just as many questions as it answers.

When is the split going to take place, for instance? And how? And what does this mean for AOL? Is it next up for a separation? Remember, Time Warner has already held discussions to merge the AOL unit with Yahoo Inc.

(Speaking of which, The Wall Street Journal says Microsoft could be making its next move in the takeover saga for Yahoo as early as Wednesday. One possibility: nominate a proxy slate of directors to replace the board at Yahoo. Also, Microsoft has considered earnmarking $1.5 billion to retain Yahoo employees should it win the company, Reuters says.)

At Time Warner, meanwhile, splitting off of the cable services division would mark the latest move by CEO Jeffrey Bewkes to revamp the company, whose stock price has lost a third of its value since the beginning of 2007.

Despite his efforts, first quarter earnings fell slightly more than expected. The breakdown: cable services were strong, with revenue up 8 percent, and AOL struggled, with revenue down 23 percent.

Keep an eye on:

• Paramount Pictures, which last year cast its lot exclusively with the ill-fated HD DVD home video format, enters the Blu-ray world with titles “Face/Off,” “Next” and “Bee Movie”. (Hollywood Reporter)
• A committee to protect editorial integrity at The Wall Street Journal said it will be more active in the search of a new managing editor for the paper after being blindsided by the resignation of Marcus Brauchli (Reuters)
• CBS Corp and NBC Universal plan to bid for the Weather Channel in the second round of bidding due in early to mid-May, sources say (Reuters)

(Photo: Reuters)

Microsoft’s weekend deadline to Yahoo to negotiate a friendly deal has come and gone. So, now what? Microsoft has its options. It could raise its bid, walk away, go hostile at a lower price or go hostile at the current price. Most Wall Street analysts think the last option is the most likely.

Separately, Marc Andreessen , co-founder of Netscape, provides a thorough breakdown of the options for Microsoft and Yahoo. Especially interesting is the part about a potential legal fight if Yahoo’s board decides to exercise its poison pill as a defense to a tender offer by Microsoft.

(Photo: Reuters/Christian Charisius)

Things could get complicated soon in the saga of Microsoft’s quest to acquire Yahoo, since the software makers deadline for what was origianlly seen as a friendly deal — at the right price — passed this weekend without Yahoo saying “I Do.”

Now, that amicable offer could get downright hostile. Analysts say they believe Microsoft is planning to launch a hostile bid at its current price of $31 per share in cash and stock.

Three weeks ago, Microsoft said it will go hostile, or even call off its bid, if Yahoo did not agree to a deal before this past weekend. Now, Microsoft executives are poised to play their next card.

(Reuters)
(WSJ)

Keep an eye on:

• Teen Star Miley Cyrus apologozed for posing seminude in provacative photos. Disney Disney Channel backed up the rising star, saying — “a situation was created to deliberately manipulate a 15-year-old in order to sell magazines.” (Reuters )
• “The Takeaway”, a rival pulics radio morning show, launchs, adding a little competition for the popular news show “Morning Edition.” (WSJ)
• Grand Theft Auto IV’ may drive up Electronic Arts’ bid for Take-Two (Los Angeles Times) (Reuters)

(Photo: Reuters)

With earnings reports for Yahoo and Microsoft out of the way, all eyes are now on Saturday, Microsoft’s deadline for Yahoo to accept its $43 billion offer.

And just in case Yahoo felt Ballmer’s comments were vague, Microsoft CFO Chris Liddell repeated: “We have yet to see tangible evidence that our bid substantially undervalues the company (Yahoo) … In fact, we see the opposite.”

Will they stay or will they go?

Alley Insider’s Henry Blodget is betting there’s a 60 percent chance Microsoft walks. After reporting a mixed quarter and below-target forecast, it’s looking unlikely Microsoft will raise its bid.

The X-factor: what will Time Warner do over the weekend if Microsoft walks?

(Reuters)

Keep an eye on:

• AOL’s sites show gains in traffic. (WSJ)
• comScore defends its analysis of Google’s paid click data. (AlleyInsider)
• Yahoo expands data sharing among friends online. (Reuters)
• Second Life gets Organic CEO. (Reuters) (video)
• WPP’s first quarter revenue growth hit by weakness in Western Europe. North America holds up better. (Reuters)
• Google close to buying Digg.com? (AllThingsD)

(Photo: Reuters)

Will Microsoft stay and fight or dump its bid for Yahoo altogether?

Even as it mulls its next move, the software maker is cranking up the heat on Yahoo ahead of its Saturday deadline.

The software maker has lined up a proxy slate of candidates to nominate to Yahoo’s board in the event it pursues a hostile bid according to the Wall Street Journal. The list has 10 nominees and three alternates the paper said citing a person familiar with the matter.

Nominees include former Nextel Partners CEO John Chapple, from Grey Global Group CEO Edward Meyer, Jaynie Studenmund, the former COO at Overture Services, which was later acquired by Yahoo, and former Adelphia Communications Corp. Chief Financial Officer Vanessa Wittman, said the Journal.

A partial list of Microsoft nominees for the Yahoo board first surfaced in March, when TechCrunch reported on sources a list that included Meyer, Chapple, and Studenmund but also listed Tom Freston, former CEO of Viacom Inc.

Meanwhile, Microsoft CEO Steve Ballmer insists he remains phlegmatic about the original $44.6 billion bid’s success. In the last couple of days he’s told journalists his company’s willing to go it alone rather than pay excessively for Yahoo.

The Journal believes one of the reasons for that might be internal skepticism at his own company. The longer the acquisition process takes the more Microsoft’s rank-and-file workers and executives weigh the consequences of what would be Microsoft’s largest deal and many oppose it.

(WSJ)

Keep an eye on:

• E.W. Scripps Co. said quarterly profit rose about 22 percent fueled by strength at its TV networks and its Shopzilla comparison shopping Web business. (Reuters )
• Apple posted a 36 percent rise in quarterly profit, helped by strong sales of Macintosh computers and iPods. (Reuters )
• The Screen Actors Guild and major Hollywood studios agreed to extend their contract talks by a week, heightening hopes for continued labor peace. (Reuters)
• Nintendo’s fourth-quarter profit jumped 60 percent but it forecast only modest annual growth of 9 percent as sales of its DS handheld machine slow. (Reuters )

(Photo: Reuters)

If you take Steve Ballmer at his word, the only way Yahoo shareholders may be able to squeeze a bit more money out of Microsoft Corp is to pray for a stellar earnings report from the software company Thursday afternoon.

The Microsoft CEO has been talking tough all week from Morocco to Milan, saying he wouldn’t raise the company’s bid for Yahoo — now valued at $43.8 billion — even after the Web pioneer’s quarterly results came in a bit better than expected.

With 50 percent of the offer consisting of Microsoft shares (the rest is cash), Yahoo’s shareholders need a solid earnings report from Ballmer … or the value of the bid could fall further with Microsoft’s share price .

At Microsoft’s current stock price of $31.45, the deal values Yahoo at $30.45 per share (our math: [MSFT share price x share swap ratio of 0.9509] + $31 and divide the whole thing by 2). To get the bid back to $31 per share — the value when the offer was first made on Jan. 31 — Microsoft’s outlook needs to be strong enough to boost its shares to about $32.60, equivalent to a 3.7 percent rise.

But to get Yahoo shareholders a buck more to $32 per share, they’d need a blow-out quarterly report from Microsoft that would push its shares up 10.3 percent to $34.70.

The last time we remember Microsoft shares jumping that much was about six months ago on Oct. 25, when it reported fiscal first quarter earnings and lifted its full-year outlook on strong sales of Windows Vista and the “Halo 3″ video game.

Check out what Wall Street is expecting this quarter.

Those of you who missed him in Morocco caught up with Microsoft CEO Steve Ballmer in Milan after Yahoo reported better than expected results, even though they fell short of stellar.

No surprise, he’s standing firm on the $44 billion offer and promises to stick by a threat to go directly to shareholders if Yahoo rejects the offer by the Saturday deadline.

Bloomberg also reports that Ballmer is willing to walk away from the deal. “We are prepared to go forward without a merger with Yahoo,” Ballmer says.

Yahoo’s Jerry Yang wouldn’t mind so much. We’re not so sure Yahoo shareholders would agree.

(Reuters) (Bloomberg)

Keep an eye on:

• Apple buys chip maker PA Semi for $278 million in cash possibly, for the iPhone. (Forbes)
• Rupert Murdoch revives media ownership debate. (NYT )
• Chinese lawyers sue CNN over “goons” comment: paper (Reuters)

(Photo: Reuters)

We weren’t expecting huge surprises during Yahoo’s earnings conference call, but CEO Jerry Yang was spectacularly vague about the Internet company’s plans vis-a-vis Microsoft or any other potential tie-ups — with Google, Time Warner’s AOL or News Corp — that Yahoo has been working on.

At the very start of the call, Yang essentially said “Don’t go there” to analysts and investors, reminding them about the purpose of the call.

“I’d like to remind you that today’s call is about our Q1 results, so please direct your questions to the quarter if possible,” Yang said.

When he touched on Microsoft — referring to it as three months of “uncertainty” — it was to reiterate the same line: “Our board and management are committed to choosing a path to maximize shareholder value.”

At the same time, Yang was bent on convincing analysts and investors that, despite an unchanged revenue forecast for the year, Yahoo deserves a higher price than the $43 billion cash-and-stock deal that Microsoft has offered. Is that because Yahoo piggybacked on gains from a stake in China’s Alibaba.com to a higher quarterly profit? Or because Yang said Yahoo’s “strategies and investments are beginning to pay off”?

Not that analysts or investors were convinced. Most continue to believe that Yahoo’s earnings are unlikely to put pressure on Microsoft on raise its bid.

Microsoft CEO Steve Ballmer, meanwhile, said before the earnings, “I wish Yahoo all the success with its results, but it doesn’t affect the value of Yahoo to Microsoft.”

So where does that leave Yahoo now? Wednesday might offer some clues, when Yahoo’s two-week test on outsourcing search advertising to Google ends. Or it may not. Yahoo chairman Sue Decker already swatted hopes on the call, saying it’s “premature” to speculate on what sort of deal the two might strike.

Photo: Yahoo CEO Jerry Yang (Reuters)