• Silicon Alley Insider, Friday, April 25, 2008 11:45 AM

The Silicon Alley Insider's Henry Blodget says there's a 60% chance that Microsoft will retract its bid for Yahoo once the deadline passes on Saturday. As a result, Yahoo's stock will fall back into the low $20s and Microsoft's will shoot back up.

Why the sudden change? For starters, Microsoft's weaker than expected first quarter makes it even less likely that the software giant would be willing to pay more money for the Sunnyvale, Calif.-based company. And Yahoo, after holding off so spectacularly for a better price, can't cave in now. "(Yahoo CEO Jerry Yang) has demonstrated that he's...been prepared for the possibility that Microsoft would walk," Blodget said. "In fact, we think Jerry would see this as a victory (which it would be) even if many Yahoo shareholders do not."

Other reasons the union looks unlikely: lots of Microsoft employees and shareholders hate the deal "as well they should," Blodget said, "Because it would be a disaster." By now, Microsoft CEO Steve Ballmer has had plenty of time to listen to internal complaints and consider that a proxy fight would take another 3-4 months minimum and regulatory approval another year. Even Microsoft's public statements seem to have gone "beyond threats to what appears to us to be acceptance and resignation."

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