BeyondGenius.com

Never mind that it was a bad idea.

Never mind that the combination of Microsoft and Yahoo will be less of a company than the two companies separately.

The fact is that Microsoft bid for Yahoo and even raised its offer in the 11th hour with Microsoft ultimately offering $33 per share, but Yahoo wouldn’t bite.

Chairman Jerry Yang and co-founder David Filo, who still own a combined 9.7 percent of the company’s stock, flew to Seattle to demand $37 per share — a price Yahoo’s stock hasn’t reached in more than two years. (We imagine Yang and Ballmer’s negotiation meeting looking more like Olive Oyl trying to negotiate with Bluto.)

Microsoft pulled it’s offer.

Now the real action begins. Capital Research Global Investors, whose parent company is the largest Yahoo shareholder, represents a growing group of investors who are upset. “I would love to know who these shareholders are,” Gordon Crawford portfolio manager said. “It’s none of the ones that I talked to today. Everybody I talked to would have sold their stock at $34.”

Now Jerry Yang is in the hot seat. Everyone did the math and knew what kind of return to expect except Yang and Filo, because returns and money don’t mean as much to them as their investors. Now they will begin to feel a level of oversight and critique unlike any they have experienced before. Shareholder lawsuits have already begun.

Jerry needs to learn that all successful negotiations require knowing who has the upper hand. In this case, it was Microsoft and their checkbook (unless Jerry has another buyer in the wings with more than $47.5 billion?).

Expect Yahoo’s stock to continue to fall and Yahoo’s stockholder’s ire to continue to rise until the heat on Yang and his board is so high that they will have to “reopen” (grovel) the dialogue with Microsoft.

In the end, Ballmer will gratiously accept the gesture and pick up Yahoo for $33 or less per share.

We always knew they could, and that they probably would, though it is not something that they should.