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Yahoo!’s (NASDAQ: YHOO) board will presently reject a $31 a share buy-out bid from Microsoft (NASDAQ: MSFT), according to The Wall Street Journal. The group thinks the offer is undervalued and will not look at any offer under $40 a share.

For the record, Yahoo!’s shares have been above $40 only very briefly in the last five years. That was in late 2005 and early 2006. Only five weeks ago, the traded below $19. The question becomes whether there is any case to be made that the Yahoo! board is acting as proper fiduciaries. The answer is almost certainly "no."

Two generations of management have had ample opportunity to fix what is wrong with Yahoo!. They have not been able to do it, perhaps because it cannot be done. Over the last five years the importance of internet portals has dwindled. The struggles of Yahoo! are mirrored in problems at its peers AOL and MSN. The internet marketplace is now dominated by search and that realm belongs to Google (NASDAQ: GOOG).

If the Yahoo! board could point to a template for success, it might be able to make a case that the company should stay independent. There is no model it can point to. A highly successful internet portal business does not exist. Yahoo! has the No.2 spot in the search business which demonstrates that even that position is not valued much by the stock market. Yahoo! trades at 5.8x revenue. Google trades for 9.5x. The Yahoo! board wants Microsoft to give it a value closer to Google’s. It is a position without a defense.

No one will pay twice what Yahoo! traded for last month. If the management could have gotten the shares above even $30 for a period of time, they would have. All they have proved is that it can’t be done.

Douglas A. McIntyre