When Yahoo Inc. co-founder and CEO Jerry Yang spurned Microsoft Corp.'s rich buyout offer this spring, he promised brighter days in Sunnyvale were just over the horizon.

Now the market collapse has helped drive Yahoo's value to a fraction of what Microsoft originally bid. If Microsoft — or another buyer — were to float a new offer, the acquisition would come much cheaper, and Yahoo would likely be under even greater pressure to take it.

Matt Rosoff, an analyst for the independent research group Directions on Microsoft, said Microsoft is much less likely to bid for all of Yahoo this time. Its search engine, No. 2 to Google Inc.'s, would likely be Microsoft's target.

Rosoff said Yahoo's pummeled stock price leaves time on Microsoft's side. The company can afford to throw money into its own Internet search operations and swoop in when Yahoo is finally strapped.

"I think they're looking at Yahoo as a rapidly declining asset," he said.

On Feb. 1, Microsoft tried to buy Yahoo for $31 per share, or $44.6 billion at the time, in a mixture of cash and stock. The offer marked a 62 percent premium to Yahoo's closing price of $19.18 the day before.

Microsoft later sweetened its bid to $33 per share, or $47.5 billion — an amount Yang and board chairman Roy Bostock said in May still undervalued Yahoo.

Since then, Yahoo's share price has been halved and analysts are seeing few bright spots as they slash expectations for Web display advertising, Yahoo's strength, in the coming quarters.

Microsoft's stock has been battered as well, but even at the shares' current level, Microsoft's original stock-and-cash bid for Yahoo would be worth about $37.1 billion to Yahoo shareholders. That's more twice Yahoo's current market value.

Having missed that opportunity, many Yahoo shareholders would love to see another one emerge now.

Mithras Capital, a Napa, Calif.-based investment fund that said it holds more than 1.9 million Yahoo shares, this week urged Microsoft to come back with an offer to buy just Yahoo's search business for $10.3 billion, a tactic that failed for the software maker in July.

"It is imperative for the Yahoo board to embrace this proposal as the best outcome for long-suffering Yahoo shareholders," Mithras' Mark Nelson wrote in a statement.

The bigger question is whether Microsoft is still interested, even though its plan to pour more resources into Web search and online advertising have not borne fruit. And given the lack of support for a deal among Yahoo executives and employees, regulatory uncertainty that will last at least through the November elections and the economic turmoil, a deal could simply take too long, Rosoff said, giving Google time to grow even stronger.

Shares of Sunnyvale, Calif.-based Yahoo fell 62 cents, or 4.9 percent, to $12.03 on Friday, and Microsoft's stock sank 82 cents, or 3.7 percent, to $21.48.

(Photo: ogimogi under Creative Commons)