Can China Kill Microhoo?

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"Any second now he's going to look at me and say you're so not worth this," says Toula Portokalos in My Big Fat Greek Wedding.

It seems as if life is imitating art over at the rocky Microhoo courtship, and no spray of Windex is going to make things any clearer.

Bad timing keeps killing Yahoo! (Nasdaq: YHOO) in its efforts to drum up a better offer from Microsoft (Nasdaq: MSFT). First it was the abysmal quarterly report that dropped shares of Yahoo! into the teens.

That afforded Microsoft the chance to ride in as a prince with its original $31-a-share offer, but things have only gone downhill from there. Analysts have been revising their earnings outlook for Yahoo! lower in recent weeks. This comes at a time when Yahoo! is losing market share in a sector where even poster child Google (Nasdaq: GOOG) has fallen out of favor.

Yahoo! has leaned on its portfolio of Asian investments in Alibaba, Yahoo! Japan, and Gmarket (Nasdaq: GMKT) to justify its lofty valuation, but that catapult is starting to fail.

Alibaba's displeasure over having Microsoft as a potential minority investor is old news. This morning finds outlets like The New York Times and The Wall Street Journal writing about an antitrust law that will beef up Chinese oversight come August. In other words, the chances of Microsoft getting its hands on a piece of Alibaba seem highly unlikely.

The bad news for Yahoo! is that selling the roughly $3 billion stake in order to facilitate a corporate handoff to Microsoft would result in a juicy tax hit. Yahoo! paid just $1 billion for its original 40% stake in the company.

Yahoo!'s balance sheet would get greener, of course, but Microsoft isn't about to pay 67 times earnings for a wad of cash saddled to a fading company. Without Alibaba, Yahoo!'s Asian investments would amount to just a quarter of what Microsoft was originally willing to pay for all of Yahoo!, mostly in the form of Yahoo! Japan.

This is just one more reason for Microsoft to take its time. Yahoo! is now just weeks away from a telltale quarterly report that may let Microsoft lower its bid substantially. With Yahoo!'s Asian portfolio reluctant to change, there may be little reason for Microsoft to stick to its meaty markup.

Sure, the stricter antitrust law will make it harder for Microsoft to come up with alternatives like snapping up stakes in other Chinese Web stars like Baidu.com (Nasdaq: BIDU), Sohu.com (Nasdaq: SOHU), or SINA (Nasdaq: SINA), but it's not as if Alibaba is likely to fall into Microsoft's lap anymore.

Return the tux, Mr. Softy. This big fat geek wedding is so not worth this.