OK, I was wrong. It turns out little Frodo and the other hobbits were able to muster enough elves, dwarves, and humans to make the Eye of Ballmeron blink and repel the evil Microsoft from Middle Internet.
In a letter sent on Saturday, Steve Ballmer threw in the towel on the fight to acquire Yahoo, saying a hostile takeover attempt would lead to Yahoo taking "steps that would make Yahoo undesirable as an acquisition target for Microsoft." (I understand Yahoo planned to shave its head, get a nose ring, and go on an all-Twinkie diet.)
The letter, addressed to Jerry Yang but clearly intended for a larger audience, goes into a surprising amount of detail over the differences between what Microsoft was willing to offer and what Yang was willing to accept. Ballmer had upped his offer from US$31 to $33, Yang wanted US$37, and both of them were too stubborn to split the difference.
As Time's Anita Hamilton asks, what's next for Yahoo? All those folks who snapped up YHOO stock hoping to cash in on the Microsoft deal will sell, and Yahoo's stock will plunge, at least temporarily. Microsoft could then swoop in again, getting a much better deal for a much weaker Yahoo. (Remember, this was not Microsoft's first attempt to win over Yahoo. I'd be surprised if this were truly its last.) Yahoo's stock was trading around US$18 per share when Microsoft announced its intentions, and then zoomed up to around US$30. If it dips significantly below where it was before Microsoft started getting all hubba-hubba, that US$33 offer is going to look awfully sweet. Of course, Microsoft won't offer nearly that much the next time round, if there is one.
The alternative isn't much better. Yahoo's ad deals with Google the Grey could effectively turn it into a functional subsidiary of the search giant -- a massive portal that no longer controls its primary source of revenue. That won't be much fun either.
The third route: Yahoo pulls out of all this and reinvents itself with some truly game changing technology it's got squirreled away, becomes a market leader again instead of a follower. Anybody out there believe that scenario will come to pass?
Personally, I'd rather have Yahoo warts and all than some freakish mash-up with Microsoft or Google. More choice is almost always better than less. Especially when the road to "less" leads to Redmond.