I had written earlier that Steve Ballmer should walk away from Yahoo. On Saturday, May 1 Steve made what I think is the right decision. It's the right decision because:
(1). Microsoft raised the offer by another $5 billion (without any credible counter-offer from any other entity and without any new information on why the initial offer-despite a 60% premium is supposed to be undervaluing Yahoo!) and Yahoo rejected it again.
(2). Yahoo pursued plausible business arrangement with Google--clearly to irritate Microsoft and Steve Ballmer; and
(3). Winning Yahoo through hostile and protracted proxy battle will only complicate post-merger integration and mitigate against potential value gains.
But, is the story over? I doubt it. Let us play out what could happen in the coming months (beyond lawsuits filed by some angry stockholders). Yahoo and Google will continue with some sort of business arrangements along the lines of the business arrangement that was tried out recently--which may get renewed attention from the Federal Trade Commission (FTC). Yahoo share may drop further, thereby attracting attention from Time Warner and News Corp. Microsoft will pursue other options including rapidly building up an offering against Google and Yahoo.
It will not surprise me at all that Microsoft gets Yahoo (or some part of Yahoo) at a much lower price within the next year or two. For now, the victor is Steve B.