If Yahoo Only Had the Nerve–But Will It Be a Happy Ending?

With this bold gesture to reject the $44.6 billion offer from Microsoft, Yahoo will need more than hope for a happy ending, because there is a very scary downside to this plucky show of courage.

That’s because Microsoft–well known for its pathological aggression–has already shown in its initial hostile move last week that it is more than willing to play hardball. In fact, very, very, very hard.

And this slap, most especially because Microsoft thinks that Google is standing right behind Yahoo in the fight, will surely send Microsoft CEO Steve Ballmer into a corporate rage, if not a real one.

It is made worse because Microsoft’s paranoia is quite legitimate. Google’s top brass has actually been meeting with Yahoo execs this past week to help formulate a plan to help Yahoo and, of course, itself, by figuring out a lucrative outsourcing deal that will not attract too much ire of regulators due to Google’s dominance of the search market.

But Yahoo is going to need a lot more than Google if it really wants to stay independent, as I believe it actually does. While some will call this a negotiating tactic to get Microsoft to give it a few more dollars above its $31 a share offer, it is not simply that.

Yahoo’s top execs and now its board are making a swing-for-the-fences effort to keep it out of Microsoft’s hands.

To do that, though, Yahoo needs to show its shareholders that it has a long-term and viable plan to revive itself and, more importantly, has the management abilities to execute that plan.

So far, when times were not as dire, it has not, and claiming emergency conditions should be no excuse for how Yahoo has gotten itself into this sorry situation.

In fact, shareholders are going to be pretty angry if the shares of Yahoo drop precipitously due to this move–and they will–given that they got a $10 bump due to the bid, up from historic lows last week after Yang announced weak earnings last week.

In fact, the stock could dip even lower and force the company to perform or risk putting itself in an even worse competitive situation.

Of course, many Yahoo employees are going to be thrilled with this show of strength. This past week, many had told me the big problem with Yahoo was that its leadership did not inspire them enough with visionary goals of big wins.

“They are so plodding, it creates no excitement to work for anything great,” said one employee to me, expressing a common sentiment. “So you just work 9-to-5 and collect your salary.”

Well, sticking it to Microsoft should certainly crank the excitement factor up to the max.

Because, as cynical as Wall Street can be, let me reiterate: This is not simply a negotiating ploy by Yahoo.

Even though, by floating the $40 number to a reporter from The Wall Street Journal in what was clearly a calculated leak, Yahoo is acknowledging that it has a price (don’t we all?), I think Yahoo CEO Jerry Yang is not one to take lightly the idea of playing chicken with the powerful Microsoft with the company he obviously loves.

So I think this is much more than showy boardroom tap-dancing for the seats in the back–it is much, much more complicated than that.

In fact, one top exec was meeting with Yang and President Sue Decker last week and noted to me: “They were being careful about what they could say about the Microsoft bid, but all the body language communicated to me that they were going to give up the company to Microsoft over their dead bodies.”

Well, let’s hope not.

Please see this disclosure related to me and Google.