The Five Dumbest Things on Wall Street: Feb. 15

2. Adventures in Web Valuations

In 2001, Google (GOOG Quote - Cramer on GOOG - Stock Picks) co-founders Sergey Brin and Larry Page broke bread with former Yahoo! (YHOO Quote - Cramer on YHOO - Stock Picks) CEO Terry Semel and discussed a possible acquisition of their fledgling search firm, according to the Sunday Telegraph.

The newspaper reported that Semel balked at the price demanded by the youngsters: $3 billion.

Seven years later, Google is worth more than $167 billion, and its stock price has risen by about 30% since the beginning of 2006. Before Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks) offered to buy it for $45 billion on Feb. 1, Yahoo was valued in the market at just $27 billion. Its stock had dropped 54% since the beginning of 2006.

Microsoft, with its iconic founder Bill Gates off preaching "kinder capitalism" with U2's Bono, somehow thinks it's a good idea to buy Yahoo! at a whopping 62% premium in the hopes that it can compete with Google in the search business. Plus, it bears mentioning that "Google" has become a verb in the intervening years, while Yahoo! remains an exclamation used by Homer Simpson when he sees a doughnut.

By making an unsolicited bid for Yahoo! in his quest to get out of his predecessor's shadow, Microsoft CEO Steve Ballmer may think he's playing Rupert Murdoch to the Web's Dow Jones, but it's becoming increasingly clear that he's about to get played himself.

Yahoo! founder Jerry Yang, who now holds the reins at the company again, rejected the bid on the preposterous grounds that the offer was undervaluing his baby. One might expect Yahoo!'s shareholders to be annoyed with the decision, but remarkably, Microsoft shareholders sound far angrier about their role in this sordid affair because they know that the PC giant is probably going to sweeten the pot.

"I want Microsoft to say 'sayonara Yahoo!' and walk away," Robert Olstein, who owns roughly 1 million Microsoft shares, told Reuters. He reportedly just wrote a letter to the company, saying "under no circumstance should you raise your price."

Murdoch himself, who won a seat at the table in Silicon Valley when he acquired MySpace, is yukking it up at News Corp. (NWS Quote - Cramer on NWS - Stock Picks). After telling analysts on a recent earnings call that he has no intention of bidding on Yahoo!, News Corp. is now reportedly in talks with Microsoft's quarry about combining it with MySpace and giving News Corp. a 20% stake in Yahoo!.

It's unclear how this plan would compensate Yahoo! shareholders for passing up a 62% premium, but that's really beside the point. Like Google's recent idea of teaming up with Yahoo! on search advertising as a possible way to fend off the Evil Empire, the News Corp. talks will dissipate soon. That will leave Yahoo! entertaining some other crackpot scheme, while Ballmer twists in the wind as shareholders wait for him to cough up the goods.

"Microsoft will need to enhance its offer if it wants to complete a deal," said Bill Miller, the legendary investor at Legg Mason, which owns a 6.6% stake in Yahoo!. Dumb-o-meter score: 91. Yeah, what that guy said.

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