Last week as news was breaking about Microsoft’s bid to buy Yahoo for $44.6 billion dollars I used a picture from The Empire Strikes Back of Darth Vader reaching out to an arm-less Luke hanging on for dear life above an abyss below. Now with the word that Yahoo’s board has decided to reject Microsoft’s initial offer I’m left thinking of some dialogue from that scene:

Darth Vader: There is no escape. Don’t make me destroy you. [pauses] Luke, you do not yet realize your importance. You have only begun to discover your power. Join me, and I will complete your training. With our combined strength, we can end this destructive conflict and bring order to the galaxy.

Luke Skywalker: I’ll never join you!

Strong words from Vader (Microsoft) as he attempts to coax Luke (Yahoo) into a partnership to take over the galaxy (Internet) – warning him that he may need to go hostile. It kind of reminds me of Steve Ballmer’s letter to Yahoo on the day of the deal.

Luke’s response is harsh and firm – but “never” might still be too strong of a word here. Yahoo (Luke) has not yet decided to throw himself into the abyss (Vader/Microsoft has also not yet revealed itself to be Luke’s father). The Dark Side still has hope.

You see, while Yahoo is set to reject Microsoft’s initial proposal, they are not expected to say that Microsoft can’t come back with a sweeter one. It makes sense, as I explained a few days ago, Yahoo’s stock was at the $34-a-share level as late as October, Microsoft’s bid was for $31-a-share. Yes, Yahoo was at $19-a-share at the time of the proposal, but being only a few months removed from a price nearly double that – and really not all that much changing in that time, it certainly seemed like Microsoft was simply trying to work the situation (earnings down, layoffs coming, stock at a 4-year low) and get a great price.

The consensus now is that Yahoo is holding out for an offer above $40-a-share. If Microsoft were to agree to this it could add over $12 billion dollars to the original proposal, pushing it towards a $60 billion dollar offer.

In negotiations an offer starts low, the person selling comes back with a much higher price, then the offering party usually ups their offer to be somewhere in the middle. Will we see Microsoft come back with a $52-53 billion dollar proposal?

At the very least all of this is buying Yahoo more time to potentially line up other options – as they still really don’t want to sell to Microsoft. Microsoft likely knows this as well, but will it annoy them enough that they take this bid truly hostile and go right to the shareholders? That’s probably unlikely.

Remember, Darth Vader offers Luke to either join him willingly, or threatens to kill him. He could probably take Luke prisoner and hold him against his will simply so he won’t join with the other side (Google), but Vader knows that a captive Skywalker would be a lot less useful to him – just as an unwilling and resentful Yahoo would be to Microsoft.

More thoughts:

• Google to Microsoft: No, We Said DON’T Be Evil
• Yahoo + Google: A Last Alliance of Elves and Men Against the Armies of Mordor (Microsoft)?
• Analyst Thinks Microsoft’s Yahoo Bid Is a Bluff, I Think Analyst Is Foolish
• Apple Not Likely to be Yahoo’s Savior
  
• Microsoft + Yahoo != Microhoo, Yahoosoft, Mahoo, Etc…
• WWY!D? What Will Yahoo! Do?
• Interwebs Tangle, Microsoft to Buy UStream.tv (rival to the new Yahoo! Live) for $50 Million?
  
• Microsoft to Yahoo: Join Us, Join Us Or Die (and here’s $44.6 billion to help you decide)