Last week Yahoo CEO Jerry Yang literally dropped off the grid for a couple of days, leaving his top execs (other than, presumably, President Sue Decker) in the dark. As I wrote on Saturday, no one could locate Yang, and, given the sheer number of high level departures and looming reorganization, those remaining in their jobs were basically freaking out.

As the weekend progressed it seemed clear that anything was possible. More than a few people saw Yang stepping down, with a new CEO stepping in. Other theories (all coming from Yahoo senior ranks) predicted anything from a merger, restructuring, asset sale, etc. Saturday was the low point; fear was rampant.

Then Yang reappeared, with a renewed determination to stay in power, fight off all these new activist shareholders and keep the status quo, say people close to Yahoo (YHOO). No one seems to know exactly what happened to turn him around, but they say he’s digging in and keeping up the fight to keep Yahoo at least partially independent.

Today’s letter to shareholders was a not-so-subtle way of showing that Yang remains in control of the company, and retains the confidence of his board. And the board of directors also retains confidence in itself, apparently: “Your Current Board of Directors Has the Knowledge, Experience and Commitment to Best Represent Your Interests and Maximize Stockholder Value.”

Microsoft Negotiations Heating Up Again

Microsoft (MSFT) is fighting for Yahoo in two ways - First, they’re denying that any talks are occurring in the hope of keeping Yahoo’s stock price down. This keeps the PR people busy as they field calls and answer direct questions indirectly. Meanwhile, a contingent of Microsoft and Yahoo insiders, desperate to marry these two companies, keep telling us that negotiations are very much alive, even if not officially recognized.

It’s Orwellian, but everyone knows Microsoft and Yahoo are talking, but since they officially aren’t talking, we’re not supposed to report on it. Meanwhile, the discussions go on.

So what kind of deal are they not talking about? It could be a full buyout. Or it could be a partial buyout tied to that fugly search asset acquisition deal Microsoft put on the table after merger talks broke down. One person close to the negotiations pegged a full buyout by end of year at 60% likely.

What about that Google deal? Well, it turns out there’s no penalty at all if Yahoo simply never implements it. Google (GOOG) can terminate the agreement, but there’s no downside to Yahoo. If Yahoo sells itself to someone they have to pay a steep $250 million fee to Google. But an interesting detail: Microsoft can buy up to 35% of Yahoo without triggering that $250 million penalty fee to Google. See the full analysis in our previous post.

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Michael Arrington

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