Is Yahoo! the Sensible One?

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The world is crashing down around Yahoo! (Nasdaq: YHOO) as it heads into next month's fiery annual shareholder meeting. Microsoft (Nasdaq: MSFT) and Carl Icahn know it, and they're twisting the screws tighter.

However, a memo Yahoo! filed yesterday details a letter that CEO Jerry Yang and Chairman Roy Bostock are sending to their stockholders. Yang and Bostock do take occasional jabs at their rivals, but the letter ultimately lays out their arguments:

• Yahoo! "will sell the entire Company to Microsoft for $33 per share or more if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing "
• It remains "open to selling only search to Microsoft as long as it provides real value to our stockholders and resolves the substantial execution and operational risks associated with the separation of our search and display businesses."
• The company's board will explore other options, "including a potential spin-off of our Asia assets and a return of cash to stockholders."

Sure, saying that it would sell itself at "$33 per share or more" isn't the same as saying "exactly $33." However, by dangling an exact price floor, and watching Microsoft refuse to accept it, Yahoo! paints itself as the jilted party, even though it failed to accept Microsoft's original buyout offer.

Yahoo! is even publicly stating that it will consider selling only its paid-search business to Microsoft -- but that's the one thing even the anti-Yang shareholders don't want. Yahoo! is correct to prefer to outsource those ads to Google (Nasdaq: GOOG). No one can monetize searches like Google can. Microsoft may be building a baseball diamond in the middle of an Iowa cornfield, but the "if you build it, they will come" approach has failed it in the past. Google's deal could pose antitrust concerns, but it's the easiest path to improving Yahoo!'s profitability without a complete surrender.

In a new twist, Yahoo! is now considering spinning off its Asian investments, which include Alibaba, Yahoo! Japan, and Gmarket (Nasdaq: GMKT), or initiating a dividend policy. These moves may not seem to create immediate value. They're zero-sum games. However, for investors ignoring the value of Yahoo!'s timely Asian stakes, a spinoff or newly created tracking stock would make that value clear.

The next two weeks will be filled with more back-and-forth volleys and spikes as the Microhoo game goes on. I'm not sure whether Yahoo!'s board can save itself, but at least the company is looking like the sensible one. With any luck, it can at least save the company itself.

Other survival-guide reading:

• The Devil Went Down to Yahoo!
• 3 Reasons to Believe in Yahoo!
• Microsoft to Yahoo!: It's Over