Yahoo won't settle for less than $56 billion

It sounds like it's official, Yahoo will be rejecting Microsoft's bid to take over Yahoo for $44.6 billion in cash and stock. Yahoo's board of directors is hoping that Microsoft won't "go hostile" and just steal the company anyway. If Microsoft does goes against their wishes, it's likely the partnership would ultimately be a failure.

Yahoo's board appears to be betting that Microsoft doesn't want to "go hostile" and try to acquire the company against the wishes of management and the board. Such a course could cause deep resentment among the rank-and-file engineers whose cooperation is crucial to the company's success. -- WSJ

A person familiar with the situation says that Yahoo will not consider an offer below $40 per share, which equals something in the neighborhood of $56 billion. Considering Microsoft must borrow to satisfy their original offer, throwing in an extra $12 billion won't be an easy decision for Ballmer to make.

So there are three options Microsoft has:

• Take Yahoo for $44.6 billion and risk making it a failure before it even has a chance
• Borrow $12 billion more to secure the deal and have a better chance of the deal working out favorably
• Run away with their tail between their legs

Personally, the last option is the only one that makes sense to me. If Microsoft goes through with the deal, even after Yahoo's rejection, it will be interesting to see outcome.