Microsoft Corp.'s $41-billion takeover bid appears to have backed Yahoo Inc. into a corner, leaving the struggling Internet pioneer with the unpleasant choice of selling to a detested rival or pursuing other agonizing alternatives likely to require the help of an even fiercer foe, Google Inc.
At least that appeared to be the consensus emerging among analysts Monday as Wall Street awaited Yahoo's response to last week's unsolicited offer from Microsoft.
Yahoo says its board is going to take its time reviewing Microsoft's bid along with other options that could keep the Sunnyvale-based company independent.
"At the end of the day, I don't think they are going to be able to turn down Microsoft," predicted technology investment banker Peter Falvey of Revolutions Partners, echoing a widely held sentiment.
But if Yahoo spurns Microsoft, analysts believe it probably will have to swallow its pride and forge an advertising partnership with Google.
Under this scenario, Yahoo would rely on Google to run its search engine while joining thousands of other Web sites that depend on the Internet search leader for a steady stream of ad revenue generated from text-based links that produce commissions with every click.
But getting Google's advertising help probably wouldn't be enough to trump Microsoft's offer by itself. To placate shareholders, Yahoo probably would have to line up enough money to pay a special dividend or perhaps even take the company private in a leveraged buyout.
Going private might be even more painful, costing up to 31 percent of Yahoo's 14,300 employees their jobs.
Stifel Nicolaus analyst George Askew still believes Yahoo will wind up in Microsoft's clutches because the world's largest softwaremaker appears to be a determined bidder with more financial firepower than just about every other conceivable suitor.
The list of so-called "white knights" willing to come to Yahoo's rescue appears to be dwindling. Several of the most logical candidates, including News Corp., AT&T Inc. and Comcast Corp., reportedly have no interest in trying to top Microsoft's bid.
Should Yahoo resist, Microsoft could still turn up the pressure by drawing upon its $21-billion in cash and lofty market value of $285-billion to raise the bid.
Some analysts believe Microsoft could end up paying as much as $35 per share - a huge premium from Yahoo's stock price of $19.18 before the saga began.
Google is attacking Microsoft's proposed takeover as a bad deal for consumers, arguing it could limit choice on the Internet.
Microsoft contends consumers and advertisers would be better off if it buys Yahoo because the combined company would pose a more formidable threat to Google's advantage in Web search and advertising markets.
Google chief executive Eric Schmidt reportedly has contacted his Yahoo counterpart, Jerry Yang, to broach the possibility of an ad partnership.
Turning over search functions and a big chunk of advertising would be a humbling step for Yahoo. The company has invested more than $2-billion to develop its own search technology and adjoining advertising system during the past five years in a largely fruitless attempt to catch Google.
Yahoo's board conceivably could even turn down Microsoft on the grounds that the current offer grossly undervalues the company, given its stock traded at $34.08 in late October.
If Yahoo assumes that stance, it might provoke a showdown at its annual meeting in a few months. Microsoft has until March 13 to nominate its own slate of directors if it tries to seize control of Yahoo's board.
Yahoo also possesses an antitakeover provision, known as a "poison pill," that could be used to issue millions of new shares to make an acquisition prohibitively expensive. Triggering the poison pill almost certainly would infuriate shareholders.
"Sooner or later, I suspect this is going to be taken directly to Yahoo shareholders," Standard & Poor's equity analyst Scott Kessler predicted. "And those shareholders are very disappointed with management's execution and the company's financial performance."