Tech Trader Daily: MSFT Slides; Betting Is They Won't Walk From YHOO

"Microsoft (MSFT) shares are sagging today amid a news vacuum on the company’s pending $31 a share bid for Yahoo (YHOO). To me, the fact that the stock is losing ground suggests investors are betting on one of of two scenarios that would be bearish for the stock. Here’s a look at the possibilities:

* Option 1: Microsoft could raise its bid. That would be consistent with a lower stock price.
* Option 2: Microsoft could pursue a hostile acquisition. That would likely result in a protracted fight, considerable expense, the departure of some Yahoo execs that they might otherwise want to keep around, and various other complications. Even with the bid price at the current level, the process will shrink the perceived value of the deal, and raise the perceived cost. Ergo, not so good for MSFT shares.
* Option 3: Walk away. If MSFT abandons its bid, the stock would likely rally, while Yahoo shares would tumble.

In a research note this morning, Citigroup’s Mark Mahaney asserted that there is a 45% chance that they reach a deal at a higher price; a 40% chance MSFT goes hostile at the current offer of $31 a share in stock and cash; a 10% chance MSFT walks; and a 5% chance that they cut a deal at the current price.

MSFT today is down 73 cents, or 2.5%, at $29.10; YHOO is up 13 cents at $26.93."