On Monday, Yahoo is apparently set to turn down Microsoft's $31/share offer - claiming it "massively undervalues" the company. Yahoo's stock will likely plummet and shareholders will likely be irate, opening up Y! to potential lawsuits. Meanwhile, analysts and bloggers are wondering if this is merely a bold negotiating tactic (after all, Yahoo didn't turn down an acquisition, they turned down a price). Silicon Valley Insider says that the current bid is way off: "The company is unlikely to consider any offer below $40 per share" (Kara Swisher confirms that price). But if Yahoo's desire for a $40/share acquisition is too rich for Microsoft, it is likely too rich for any other potential bidder.
Negotiating tactic or plain rejection, this is a gutsy move by Yahoo.
And if Yahoo indeed rejects the offer, all indications suggest that they will outsource search to Google (a magnificent admission of failure)... a result that frightens me. While I have my doubts about the ability of two monstrous companies to integrate effectively and/or efficiently, I like the concept of having a second player in the search and online advertising market. If done effectively, Yahoo and Microsoft would pose a competitive threat to Google - and competition is always good for consumers (and advertisers, publishers, etc).
My gut says that this story isn't yet over... the discussions are just getting more intense.