Why Yahoo's Board Should not Cave in?

--Sure, the software giant's $31-a-share offer looks astronomical at first blush. That would deliver a paltry return on the investment for Microsoft of just about 3%. Yet Yahoo could be worth more to Microsoft than these metrics suggest. --Strip out the value of Yahoo's stakes in Alibaba and Yahoo Japan, as well as its cash, and the price for Yahoo's core business falls to some $31 billion. On that basis, Microsoft would be paying 23 times Yahoo's earnings before interest, tax, depreciation and amortization after accounting for stock-based compensation. But factor in the $1 billion in cost savings and the multiple comes down to 13 times. --That gives Yahoo room to negotiate a bump. The question is whether it has the leverage to get a big one. In theory, Yahoo could be worth another few dollars a share if its calcified management is willing to outsource its search business. But that's easier said than done. Microsoft is clearly not going to settle for a search deal when it wants to buy the business outright. --That leaves Google, which would love to monetize Yahoo's millions of eyeballs -- either as an owner of Yahoo or search partner. The trouble is that it would hand Google 74% of the U.S. market. That might have flown a year ago, when regulators' knowledge of the business barely would have fit a Wikipedia page. But Google's purchase of DoubleClick and Microsoft's of aQuantive forced them to scrutinize the industry. --Structuring a deal to appease antitrust watchdogs would take time, during which Yahoo would continue to struggle as the industry's mini-me in the capital-expenditure battle that Google and Microsoft are waging. Yahoo should resist folding right away -- but it should make every effort to elicit a higher offer out of the bidder who can make the most of its assets.