When Microsoft made a bid to buy Yahoo on February 1, the Internet company's stock was at $19.18 a share. Microsoft's offer of $31 a share, a 62 percent premium, caused Yahoo' stock to soar. It shot past $28 a share and soon was hovering around the $30 a share mark -- a level it hadn't been at for months.
It was a nice little vacation in respectable stock heaven, but now reality is setting in once again.
Following Yahoo formally shutting the door on a deal with Microsoft, and its subsequent alliance with Google, the stock is tanking. It's price chart looks like the Mariana Trench (see the chart below) as it rapidly descends into the lower $20s.
Yahoo, at least, seems to have gotten what it wanted, a deal with a company other than Microsoft that will bring it quite a bit of cash quickly. So why are investors disagreeing in droves?
Well, there is still a perception that the Google deal, while attractive short term, is a "cutting off your nose to spite your face" situation long term. Sure, Google will be paying Yahoo money in exchange for placing ads on its search results, but such a deal also insures that Yahoo is never going to return to the prominent position it once held on the Internet.
Of course, given Google's growing position of power and Microsoft bottomless pocket book, that was unlikely to happen anyway.
But there is also a real fear that this deal to "save Yahoo" could end in a heartbeat. No deal is complete without escape clauses, and this one has some significant ones.
Google is free to walk away from the pact if any third part replaces Yahoo's board in either of its next two shareholder meetings. While of course this list includes Microsoft, it also includes one Carl Icahn. A man who has lost a lot of money over the past few days thanks to his massive buy-up of Yahoo stock over the past several weeks.
As of this morning, word was that Icahn's hostile takeover plan of Yahoo was still a go. Investors, seeing the stock plummeting may be even more welcome to such a move now.
Of course this Google deal complicates things a bit more. Yahoo will have to pay Google a quarter of a billion dollars if the agreement is broken due to takeover. But hey, what's another $250 million when companies out there are willing to spend tens of billions on the company? The bigger deterrent is still Yahoo's so-called "poison pill" which triggers severance packages in the event of a takeover and adds a couple billion dollars to the deal. Icahn will try to eliminate that if he goes forward with his takeover.
So, did Google just earn itself a quick $250 million? If Yahoo can't turn its stock price around, that could be the case.