Since several Peridot clients own shares of Yahoo! (YHOO) I figured a discussion of my game plan would be in order. It's interesting that YHOO shares are trading at $28 and change, nearly 10% below the initial Microsoft (MSFT) bid.
Most of the other money managers I've seen quoted agree with me that Yahoo! really has no other choice but to sell itself at this point. Their lack of progress as an independent company (and as a result, sub-$20 share price) makes any offer in the 30's from a large player nearly impossible to get away from. CNBC's Squawk Box anchors called the bid "Murdochian," which I thought was a perfect characterization. Dow Jones could not turn down $60 per share when the stock was in the 30's on its own. The MSFT premium isn't as large, but it's close.
It is no secret that Jerry Yang and Co. really prefer not to combine with Microsoft (or else they would have done so a long time ago), so this hostile offer gives them an opportunity to try and find other potential bidders to start an auction for the company. Sources have reported that both hedge funds and other large media companies might be interested in making bids, so this could get very interesting. I don't know how accurate those reports are, but I would guess there would be at least a 50% chance (maybe as high as 60%-65%) that another party makes a bid.
Combine that possibility with the fact that Yahoo! is trading at a wide discount to the $31 offer (Yahoo!'s board will take its time deciding and then getting anti-trust approval also won't be quick), and you might be able to guess that I am not selling any YHOO shares yet. The odds are very good that shareholders get $31, and a bidding war is not out of the question by any means.
I hope there are other bidders, because MSFT certainly has the cash to raise their offer, but they won't bid against themselves just to hasten an acceptance from YHOO's board. Rejecting $31 and seeing a sub-$20 quote again just isn't something they can afford to do.
Full Disclosure: Long shares of Yahoo! and waiting it out