Yahoo! (NASDAQ:YHOO) and Microsoft (NASDAQ:MSFT) met recently to discuss Redmond's buyout proposal. It did not go well. According to The Wall Street Journal :"The Microsoft executives showed no willingness to raise their cash-and-stock offer."

It is old news that a long wait on a resolution does not help Yahoo!. Its management and board are distracted by the M&A issue when they should be working on fixing a company which is experiencing slow growth and margin pressure. Microsoft may also suffer because Yahoo! may be having modest revenue problems and key employees may be leaving in the face of the buyout.

While it has been proposed before, it is stunning that Microsoft does not walk away from its offer, at least for now. At this point Redmond has absolutely no leverage. The Yahoo! board can wait it out.

By lowering its offer, Microsoft could send Yahoo!'s stock back to $19 where it traded two weeks before the offer. Investors in Yahoo! would scream for a deal. The stock trades at $28 now.

It is odd that Microsoft, known for its aggressiveness, is frozen at the wheel. While dropping the price is not a new idea. it looks better every day.

Douglas A. McIntyre is an editor at 247wallst.com.

Though time is on Microsoft Corp. (NASDAQ: MSFT)'s side in its $44.6 billion unsolicited takeover battle for Yahoo! Inc., (NASDAQ: YHOO), that doesn't necessarily mean it will win the war.

The world's largest software company late Monday said -- predictably -- it was disappointed that Yahoo "has not embraced our full and fair proposal to combine our companies" and that it was "confident that moving forward promptly to consummate a transaction is in the best interests of all parties.''

You didn't have to be psychic to see that coming.

But Yahoo co-founder and chief executive Jerry Yang isn't stupid. Microsoft, like News Corp (NYSE: NWS) in its pursuit of Dow Jones & Co. is an uneconomic buyer of Yahoo. Steve Ballmer wants to make sure that Yahoo doesn't fall into the hands of the either Google Inc. (NASDAQ: GOOG) or a media conglomerate such as Time Warner Inc. (NYSE: TWX), parent company of AOL. He has already pledged to pay a 62% premium for a company that many on Wall Street believe has seen its best days.

The soap opera known as Microsoft (NASDAQ: MSFT) and Yahoo! (NASDAQ: YHOO) looks like it is going to continue as Yahoo!'s board of directors rejects Microsoft's $44.6 billion bid. This is part of the game that investment bankers affectionately call "posturing". There are no other bidders for Yahoo! currently, but Microsoft desperately wants Yahoo!. Actually, Microsoft desperately needs Yahoo!.

So, what in the heck is going on here? Yahoo! shares fell to $19.18 after it reported disappointing numbers for the December 2007 quarter and forward guidance was ugly. Yahoo! has been struggling for a few years as Google (NASDAQ: GOOG) has been eating its and all other competitors' lunch.

I spent 16 years in the investment banking world and when it came to valuing IPO's, mergers and / or acquisitions, the very first question all parties involved would ask is "what are the comparables?" If company A wants to offer its IPO, we valued the IPO based on current public values of competitors, including price-earnings ratio, price-to-book value, price-to-sales, operating margins vs. industry comps, etc. Picture yourself looking to buy a home. The first thing you look at is the square footage comparison, neighborhood and other vital pieces of information of homes sold in your price range. It's the comps. Same in the investing world.

Microsoft (NASDAQ: MSFT) is forgetting what has worked for it in recent years: lavishing cash on its shareholders.

The stock lost more than half its value between December 1999 and summer 2006, but has since easily outperformed the broad market. That's partly because of brisk sales. PC unit shipments have increased 10% a year for three years. Microsoft has a fresh operating system on the shelves in Vista, barely a year old. And while Apple's (NASDAQ: AAPL) clever "I'm a Mac" commercials have won many of us over, Microsoft still has a 90% share of the market. Also, the company has done a much better job of late protecting against overseas piracy. So sales for its fiscal year ending June 30 are expected to swell 18%.

But much of the stock's success is owed to a plan announced in summer 2004. It called for stuffing $75 billion in cash into the pockets of shareholders through dividends (including a plump $3 a share paid one time) and share repurchases. Repurchases, of course, increase earnings per share and tend to make remaining shares more valuable.

Apart from the rekindled growth, the two main things to like about Microsoft today are that it still produces heaps of cash and that its stock is still reasonably priced. The company's cash on hand has recently grown to $19 billion or $2 a share. Shares finished trading Thursday at around 18 times trailing earnings, a slight premium to the broad market's 16 times earnings, but one that's warranted considering the growth spurt.