Yahoo tumbles; crude oil tops $120

By Charley Blaine and Elizabeth Strott

Shareholders got a chance to speak today after Microsoft (MSFT, news, msgs) walked away from a $47.5 billion offer for Yahoo (YHOO, news, msgs), and they weren't happy.

Yahoo shares dropped more than 20% at the open. Though they recovered a bit of the loss, the shares closed at $24.37, down 15% from Friday and the biggest loss for both the Standard & Poor's 500 Index and the Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks.

Microsoft shares were down, too, dropping 0.6%, to $29.08. Microsoft had jumped 3.4% right after the open and then slowly moved lower for the rest of the day. That's a possible signal that investors are uneasy about the software giant's moves going forward. (Microsoft is the publisher of MSN Money.)

The stock market, meanwhile, was pressured all day by rising crude oil and commodity prices. Crude reached a record closing high of $119.97 a barrel in New York after jumping to a new intraday high of $120.36.

The Dow Jones industrials fell about 89 points, or 0.7%, to 12,970. The S&P 500 was off 6 points, or 0.5%, to 1,407. The Nasdaq Composite Index was off 13 points, or 0.5%, to 2,464. The Nasdaq-100 fell 6 points to 1,976.

The Dow was pulled down by auto giant General Motors (GM, news, msgs), down 3.6% to $22.36 after workers struck at a plant in Kansas City, Kan., where the popular Impala is built.

Financial stocks also moved lower because of speculation that Bank of America (BAC, news, msgs) may abandon its offer for Countrywide Financial (CFC, news, msgs). Countrywide was down 10.4% to $5.36, the second-worst S&P 500 performer after Yahoo.

Late in the day, The Wall Street Journal said telecom company Sprint Nextel (S, news, msgs) was mulling selling or spinning off Nextel, which it bought in 2005. The Journal said the development was an acknowledgement that the deal has been a bust.

Wall Street cheered the move; the stock jumped 11% to $8.72 on the news.

Only four of the 30 Dow stocks finished higher on the day, led by Alcoa (AA, news, msgs), up 2.2% to $36.89 on the commodity rally. Only 157 S&P 500 stocks had gains on the day, along with 30 Nasdaq-100 stocks.

Energy prices -- New York close

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$119.97	$116.32	$3.65	5.74%	24.99%
Heating oil (per gallon)	$3.3065	$3.2187	$0.0878	4.08%	24.80%
Natural gas (per million BTU)	$11.1780	$10.7770	$0.4010	3.09%	49.38%
Unleaded gasoline (per gallon)	$3.0529	$2.9664	$0.0865	4.15%	22.57%

The big bet that something will happen

When the dust settled from a wild day of trading for Yahoo, there were two key questions:

• Who was buying the stock?

• Will there be a flood of lawsuits?

There were a ton of buyers. About 279 million Yahoo shares changed hands today -- about eight times the daily average volume of 34.1 million shares and 20% of the outstanding shares.

What's not known today is how much of the selling was by institutional investors, who owned 73% of the stock at the end of December.

The value of Yahoo's shares dropped by some $5.9 billion today, and some investors lost serious dollars.

The company's biggest investors, Capital Research and Legg Mason, are sitting on paper losses of $665 million and $400 million, respectively. (Co-founders David Filo and Jerry Yang lost $330 million and $220 million respectively.)

Some were vocal about their unhappiness. "I'm extremely disappointed in Jerry Yang," Gordon Crawford, a portfolio manager at Capital Research Global Investors and one of the most influential players in American media, told The Wall Street Journal today. "I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."

Crawford would have supported a deal at $34 a share. Microsoft had offered $33; Yahoo wasn't willing to drop under $37.

Those who were buying got into the stock because they saw several possibilities:

• Google and Yahoo forge closer ties -- and survive the antitrust challenges.

• Yahoo and Time Warner's (TWX, news, msgs) AOL agree to merge.

• Yahoo starts a massive stock buyback.

• Yahoo and Microsoft start talking again. Yang, in fact, said today he'd listen again if Microsoft wanted to talk.

Meanwhile, CNBC's David Faber reported that there is some talk that disgruntled investors might mount a proxy fight to oust the Yahoo board.

At the same time, Yahoo, which is already facing several shareholder lawsuits for rejecting Microsoft's bid, could now be contending with more.

" think it's pretty hard for the Yahoo board to turn down $33 when they've shown no ability to turn around their stock price," Stuart Grant of Grant & Eisenhofer, a law firm that specializes in bringing investor lawsuits, told Reuters. "There's going to be breach-of-fiduciary-duty lawsuits, and I must tell you they are looking pretty good right now."

But another legal expert wasn't convinced that any lawsuits would be successful. Delaware law (under which Yahoo is incorporated) gives directors "a presumption that they've acted in good faith and in the best interests of the corporation," Penn State law professor Samuel Thompson told Reuters. Shareholder suits would have had more of a chance had Microsoft gone hostile, he added.

Yahoo-Microsoft: Price was the problem

Microsoft withdrew its offer late Saturday after a series of meetings between the two companies that ended Saturday.

"Clearly a deal is not meant to be," Microsoft Chief Executive Officer Steve Ballmer wrote in a letter to Yahoo CEO Jerry Yang.

• Poll: What do you think about Microsoft's bid for Yahoo?

For the two tech giants, price remained the stumbling block. Microsoft boosted its offer for Yahoo to $33 per share, an increase of $5 billion over its original $31-per-share bid, but that wasn't enough. Yahoo wanted $37 per share, according to Ballmer.

Microsoft made its decision to walk away from the deal after Ballmer and Kevin Johnson, the head of Microsoft's online business, met with Yang and Filo over the weekend. Yang is now CEO of the company.

• MSN's Stock Challenge: Win $15,000!

"After careful consideration, we believe the economics demanded by Yahoo do not make sense for us," Ballmer said.

Microsoft first offered $44.6 billion in cash and stock -- or $31 per share -- on Feb. 1. The bid represented a 62% increase over the price of Yahoo shares the day before the offer was made. Two days before, Yahoo shares were at a 52-week low of $18.58.

Publicly, Yahoo executives opposed the deal on the basis of price. Behind the scenes, the culture of Silicon Valley, where Yahoo is based, was at odds with the Microsoft culture.

"From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company," said Yahoo chairman Roy Bostock in a statement Saturday.

• Get free, real-time stock quotes on MSN Money

Some analysts speculated this morning that a deal between the two companies could happen down the road. Both are struggling to catch up Internet search giant Google (GOOG, news, msgs).

Microsoft had pitched a deal with Yahoo as the best way for the two to bulk up to compete against Google.

Google was seen as the winner of the battle today. The stock was up 2.3% to $594.90.

"Microsoft is playing hardball, but I think a deal will still happen," Piper Jaffray analyst Gene Munster told MarketWatch.com. "It's like a couple trying to break up -- they say they are done, but you know they will get back together."

Good news for the service sector

There was some unexpectedly positive news about the economy this morning.

The Institute for Supply Management's nonmanufacturing index showed a rise to 52 in April from a reading of 49.6 in March. Economists had expected a reading of 49.1.

Readings above 50 indicate expansion. Services make up about 90% of the economy.

Will Bank of America abandon Countrywide?

Shares of troubled mortgage lender Countrywide Financial slumped 15% to $5.10 this afternoon after Friedman Billings Ramsey analyst Paul Miller said Bank of America should walk away from its deal to buy the company.

If Bank of America decides to continue with its plans to buy Countrywide, the nation's second-largest bank should cut the price to below $2 a share. Countrywide's "loan portfolio will prove a drag on earnings and could force (Bank of America) to raise additional capital," Miller wrote in a note to clients this morning.

In January, Bank of America agreed to pay $4.1 billion to buy Countrywide in a stock swap, but analysts have been skeptical that the deal makes sense. Last week, Standard & Poor's lowered Countrywide's credit rating to junk status after Bank of America said it was not obligated to support any of Countrywide's outstanding debt. Bank of America was off 2.1% to $38.97.

Oil rises along with gas prices

Crude oil jumped over $120 a barrel today on supply concerns after an attack on a Royal Dutch Shell (RDS.A, news, msgs) oil-transfer facility in Nigeria. The intraday high of $120.36 topped a previous intraday record of $119.93 on April 28.

Bloomberg News suggested oil's rise was also a reaction to the nonmanufacturing report.

Retail gasoline prices have soared in the past two weeks, putting more pressure on consumers. The average price of self-serve regular gasoline rose 15 cents to $3.62 a gallon, according to the Lundberg Survey. The survey polls prices at 7,000 gas stations across the country.

The cheapest gas was in Cheyenne, Wyo., where drivers could fill up for $3.39 a gallon. The priciest was in San Francisco, with gas at $3.95 a gallon.

Regular gasoline is up 55 cents per gallon this year.

Energy stocks moved higher with oil. Chevron (CVX, news, msgs) was up 0.3% to $95.62. Devon (DVN, news, msgs) rose 2.2% to $114.52, and Transocean (RIG, news, msgs) added 1.3% to $153.87.

Refiner Tesoro (TSO, news, msgs) fell 0.6% to $25.32 as investors feared that higher crude costs will squeeze profit margins.

Short hits from the markets -- 4 p.m.

	Mon.	Fri.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	1.550%	1.465%	0.085	15.67%	-50.64%
5-year Treasury note yield	3.135%	3.159%	-0.024	3.36%	-9.26%
10-year Treasury note yield	3.845%	3.845%	0.000	2.29%	-4.71%
30-year Treasury bond yield	4.581%	4.565%	0.016	1.87%	2.74%
Currencies
U.S. Dollar Index	73.375	73.690	-0.315	0.90%	-4.33%
British pound in dollars	$1.9685	$1.9736	-0.0051	-0.98%	-1.04%
Dollar in British pounds	£0.5080	£0.5067	0.0013	0.99%	1.05%
Euro in dollars	$1.5492	$1.5442	0.0050	-0.82%	6.00%
Dollar in euros	€ 0.6455	€ 0.6476	-0.0021	0.83%	-5.66%
Dollar in yen	105.14	105.27	-0.13	1.16%	-6.00%
Canadian dollar in U.S. dollars	$0.987	$0.981	$0.0058	-0.70%	-0.60%
U.S. dollar in Canadian dollars	$1.014	$1.019	-$0.0053	0.77%	0.61%
Commodities
Gold	$874.10	$858.00	$16.10	1.88%	4.31%
Copper	$3.9475	$3.8205	$0.13	3.32%	29.81%
Silver	$16.8300	$16.4650	$0.36	2.22%	12.80%
Corn	$5.9400	$6.1350	-$0.19	-1.04%	30.41%
Crude oil (NYMEX) (per barrel)	$119.97	$116.32	$3.65	3.14%	24.99%