One thing that kept the company’s multiples and stock afloat was the embedded acquisition premium.  At a market cap of $30-40B, only one company really stood to acquire it: Microsoft.   Considering, however, how brazenly Yahoo! spurned Redmond’s overtures, that premium vanished.

This is why, I think, the company is now trading below $25B.  Sure, the economic headwinds don’t help… but that is secondary to the unique factors facing the company.

Now we hear that the Department of Justice is looking at pursuing Google - something we suggested all the way back in 2006 in Google is the 21st Century’s Answer to Microsoft and Standard Oil.

If the DOJ indeed takes this route, then it is highly possible that Google will simply walk away from the deal.  Having totally rejected Microsoft, this would not automatically re-open talks for a merger or acquisition, though that remains an option.  The question would then be: at what price?  Surely not the $44.6B MSFT offered earlier this year.

This all begs the question: is YHOO’s downside risk large enough that more than one player (with smaller pockets) could suddenly become a potential acquiror?

Time will tell.