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The Activist Investor: Sell Yahoo!

When Yahoo! Vice President Brad Garlinghouse penned the infamous Peanut Butter Manifesto in October 2006, there was reason to hope that some new ideas and energy might actually spring up from within Yahoo! to shake some of the scales from this organization's eyes.

Two years later, that letter's call for changes have gone unanswered and the prescriptions are as relevant now as they were then. I suspect the same will be said again two years from now.

Anyone holding a long position in Yahoo! is doing so for the potential value their assets might fetch in a company sale to Microsoft, not for the potential increased value current management might create from extending the current assets. It is likely that some kind of deal with Microsoft will happen. Microsoft continues to be exactly nowhere in terms of search and Web services traction.

Yahoo!'s proposed deal with Google (GOOG) appears to have stalled in regulatory approval. Most importantly, Yahoo! is trading at its early-2003 levels -- 59% below its Feb. 12 close after the Microsoft bid earlier this year.

I judged I couldn't continue to hold Yahoo!'s stock based on a strategy of hoping that Steve Ballmer will come back to the negotiating table. As he's bidding against himself, he has no incentive to come back now versus waiting and watching Yahoo!'s stock continue to drop. And, with the frozen credit markets and large media companies having seen their market capitalizations drop 30%-60% in the last month, make no mistake: Microsoft is still going to be the only bidder for Yahoo! in the foreseeable future.

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