• Silicon Alley Insider, Thursday, February 7, 2008 11:15 AM

Yahoo's shareholders seem to be the only ones who are happy about Microsoft's offer to acquire the struggling Web giant. Meanwhile, fearful Microsoft shareholders are defecting, Google's firing up Washington, Yahoo's board is frantically searching about for other alternatives, and fearful employees from both companies are casting out their resumes. Microsoft's stock has also plunged so far that the deal (which was to be a 50/50 cash-stock split) is now down to $29 per share from $31.

Analysts remain unconvinced. A much better deal could (and should) be worked out. Instead of combining the two companies--a slow process fraught with risk and regulatory hurdles--Microsoft and Yahoo would be better off leaving Yahoo as a stand-alone entity. Such a deal would involve trading its online division, plus $10 billion to $15 billion in cash for half of the new company. Microsoft CEO Steve Ballmer could be chairman, and the new board could appoint a new management team.

Microsoft is way too big a corporation with too many hands in too many pots to efficiently handle a Yahoo acquisition. But the new company could, significantly, compete with Microsoft cash cows like Windows and Office. It would also clear regulatory hurdles faster and even be able to acquire the "wreckage" of AOL.

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