Pity investors who bought shares of Yahoo! Inc. [YHOO] late in Friday's session on word that Microsoft Corp. [MSFT] had raised its offer price and that the two sides were negotiating a deal. Yahoo!'s stock closed up close to 7% on Friday at $28.67 and were up another 4% in after-hours trading. But with Microsoft now abandoning its $31 per share, or $42 billion, bid, Yahoo! shares will take a hit on Monday, although how it will go is anyone's guess..

The first test may comes overseas, where shares of Yahoo! Japan! could take a fall in early trading on Monday on the Nikkei. The stock had risen more than 15% in the days after Microsoft's initial offer o Feb. 1. Yahoo! owns 33% of Yahoo! Japan, while Softbank Corp. has a 41% stake. The focus for many investors was $19.18, the price where Yahoo!'s shares closed Jan. 31, the day before Microsoft went public with its offer. 

Yet while there's speculation that the shares could fall even below that level, particularly with the the economy sputtering,  some factors could help shore up the stock. One school of thought is that Microsoft's withdrawal of its offer is merely a negotiating tactic and that the company plans to renew the bid after Yahoo!'s shares have fully absorbed the shock of the software maker taking a walk. Many analysts compare the situation with Oracle Corp.'s [ORCL] move to pull its offer for BEA Systems Inc. late last year; BEA shares subsequently tanked and Oracle went in for the kill, landing its quarry in January. For this gambit to work, however, Microsoft would need to come back fairly quickly since part of the strategic reason for combining the companies was to pose a greater threat to Google Inc. [GOOG] Any delay would set back those efforts.

Sanford C. Bernstein & Co. LLC analyst Jeffrey Lindsay on April 23 estimated the value of Yahoo! shares on a standalone basis at $25.50, excluding any search outsourcing deal with Google. If an agreement comes quickly, shares would likely recover into the mid-20s, though they'd have a tough time climbing above $30 unless Microsoft or another bidder returns with an offer. Since the heat is now on Yahoo! to show it has a plan, it's likely to move quickly to strike a deal to outsource its search advertising to Google. According to some estimates such a pact could boost Yahoo! sales by as much as $1 billion. Any deal would still be subject to antitrust scrutiny, of course, as Google and Yahoo! are the the No. 1 and No. 2 companies in search advertising.

Although Yahoo! appears to have achieved its immediate goal--to escape Microsoft's clutches--the only thing holding back shareholder litigation was that the deal fell apart over the weekend. Already distracted Yahoo! management will have to ward off allegations that it failed to fulfill its fiduciary duties. Eric Jackson, who last year convened a group of Yahoo! shareholders to demand the resignation of then-CEO Terry Semel, already is urging shareholders to vote against the company's slate of candidates at its next annual meeting in July. -- David Shabelman

See May 4 story from MarketWatch
See May 4 blog post from Breakout Performance
For more see TechCrunch, The New York Times and BusinessWeek