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Yahoo! shareholders are delusional?

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Since the onset of the credit crunch, it's been hard times for merger arbitrageurs. Simply put, there have been a variety of high-profile deals that have imploded.

And, of course, we have a new one: Microsoft Corporation (Nasdaq: MSFT)'s abandonment of its proposed $47.5 billion buyout of Yahoo! Inc. (Nasdaq: YHOO).

Yet, if you look at the stock price of Yahoo!, it looks like the arbitrageurs are still optimistic that a deal will happen. In fact, there is speculation that an activist fund will launch a proxy fight.



On the other hand, if you listen to Microsoft, it really does sound like the deal is dead. For example, according to CNBC.com, Microsoft's Chief Research and Strategy Officer, Craig Mundie, threw some cold water on the speculation.

So, why are the arbitrageurs still in the stock? Interestingly enough, it looks like they are parsing Mundie's words. He said Microsoft won't come back to the table "at least at this point...."

Yes, it's a fine point. But, with so much money on the line, the arbitrageurs need something, right?

I think Microsoft's stance on pricing may be a way to draw a line in the sand on valuation on future deals. No doubt, the company wants to consolidate the Net space -- but, as seen with Yahoo!, it will be disciplined in pricing. Keep in mind that Mundi also said that if Yahoo! wants a deal at $33, there may still be interest.

How's that to confuse the arbitrageurs?

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

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Last updated: November 25, 2009: 08:42 AM

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