• The Wall Street Journal, Thursday, October 12, 2006 11:31 AM

Perhaps some of you woke this morning expecting to see that Yahoo, responding to all the criticism it endured after a major Google deal, had finally completed its acquisition of Facebook, the No. 2 social network on the Web. Not today--and maybe not any day, according to "people familiar with the matter." Discussions are continuing, although no deal is imminent, unless Yahoo ups its offer of nearly $1 billion or changes certain conditions in its negotiations.

If Yahoo fails to secure a deal for Facebook, the overall mood surrounding the company's floundering stock is likely to flounder more. After announcing it would deliver lower-than-expected ad growth in the third quarter and that its new ad system would be delayed, Yahoo needs some good news. It needs to show that it's moving forward, while the rest of its business shows signs of aging. A Facebook acquisition gives Yahoo a second chance with social media (Yahoo 360 never took off), much like YouTube will give Google a second stab at online video. As Deutsche Bank analyst Jeetil Patel says, "Yahoo needs to skew younger in its audience for future growth over the next five years."

Yahoo's valuation of Facebook has fluctuated as the social network's traffic has settled and even dipped recently. It's always been in the range of $1 billion, but "there's not a tremendous desire on either side" to get a deal done. Especially after Google's monster deal, Facebook will be happy to rest on its laurels--and wait for an even better offer, perhaps.

Read the whole story at The Wall Street Journal »