Shorts exit Yahoo! (YHOO) -- concerns about a buyout?

Short interest in Yahoo! (NASDAQ: YHOO) fell in September by 11 million shares to 51.3 million.

At first blush, the move does not make much sense. Wall Street has been concerned that new management is doing no better than Terry Semel, the former CEO. Over the last six months, the shares were down over 15%. The last quarterly report showed advertising growing slowly, and the company has indicated that the third quarter will not be much better.

Yahoo! has made some small deals like buying e-mail company Zimbra, but all of the larger deals -- like recent news about Microsoft (NASDAQ: MSFT) or Google (NASDAQ: GOOG) buying a piece of Facebook -- have left Yahoo! out.

The danger in shorting Yahoo! is that there may be rumors of a buyout of the company again. The New York Post picked up a rumor yesterday that Microsoft might make public the offer it gave Yahoo! management earlier in the year. This might put the company into play.

If Yahoo! posts a poor Q3, investors could feel that the new management has no chance of improving the company's fortunes. If that brings in buyers, the shorts will have exited ahead of a run up.

Douglas A. McIntyre is a partner at 24/7 Wall St.