Since Microsoft Corp. [MSFT] unveiled its unsolicited offer to acquire Yahoo! Inc. [YHOO] on Jan. 31, we've argued that the software giant was likely to capture its prey no matter how hard Yahoo! wriggled to break free. No great sport in that sort of prediction, of course, because that's what usually happens when a struggling company suddenly gets a lifeline in the form of a major takeover bid. Add in a grumpy shareholder base and you have all the ingredients for a deal.

While we didn't expect Yahoo! to go down without a fight, the strength of its resolve has been impressive. It's floated numerous alternatives to Microsoft's $42 billion takeout, though none that appears to be better than the offer on the table. In his weekly research note on the Internet sector, Jefferies analyst Youssef Squali on Friday wrote that Microsoft clinching a deal for Yahoo! "continues to be the most likely outcome," either at the current $31 per share offer price or a slightly higher price, though it may have to resort to a proxy fight to pull off a deal.

While Squali sees deals between Yahoo! and AOL or News Corp. [NWS] as "non-starters," others don't necessarily agree. Earlier this week, Sanford C. Bernstein analyst Jeffrey Lindsey said that Yahoo!'s announcement that it was extending the deadline for nominating candidates for its board of directors, which could postpone a proxy fight, suggests that the Internet company is taking a more aggressive approach to finding alternatives.

In early February, Lindsey laid out a scenario where Yahoo! could be worth as much as $40 a share if it acquires AOL "on reasonable terms." Alhough Yahoo! obviously is not dealing from a position of strength in any negotiations with AOL parent Time-Warner Inc. [TWX], Lindsey said it isn't in a terrible position since a Microsoft-Yahoo! combination would eliminate both of those companies from pursuing AOL in the future. Lindsey also argues that Yahoo! "is one of the few companies that could take out a lot of costs" in an acquisition of AOL, making the deal more attractive.

In the end, Yahoo! would need to convince its shareholders that any alternative it puts forward is better than the offer on the table. That still seems like a difficult proposition and why something other than a buyout from Microsoft remains a long shot. - David Shabelman

See Feb. 14 story from Tech Confidential
See March 5 post from Silicon Alley Insider
See March 7 post from Seeking Alpha