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Shareholder ire may reshape Yahoo

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That might involve wooing a different buyer, like Rupert Murdoch's News Corp.

Or, Yahoo may continue to pursue a partnership with Google. Under such a deal, Yahoo would outsource advertising tied to search queries on its sites in exchange for revenue.

"If [Yahoo's search engine] was one of the things holding up their old stock price – and it was – then the stock drops to a new low because you have to base it on something else," says Enderle. "They've fielded a series of ideas and the market didn't like any of them."

He warns that the reported high-fiving among some Yahoo managers following Microsoft's pullout might only fuel shareholder anger come election time.

Yahoo's annual meeting is slated for July 3.

Still, Mr. Keller and other analysts doubt Yahoo's board has much legal exposure because the majority of shareholder lawsuits turn on some issue of fraud or lack of disclosure, not simply the falling short on fiduciary responsibilities to shareholders.

"In practice, courts defer to managers in these matters and give boards great latitude," says Robert Daines, a professor at Stanford Law School. "Courts will say, 'Shareholders, if you don't like it, vote the board out'. "

That's easier said than done, Mr. Daines adds, because boards often stagger the election of their directors. In Yahoo's case, the board is not staggered, a fact that some analysts expected Microsoft to capitalize on. When negotiations broke down Saturday, the software giant could have attempted a hostile takeover through board elections. Instead, it chose to drop the bid. In a letter to his Yahoo counterpart, Microsoft CEO Steve Ballmer noted that "by failing to reach agreement with us, you and your stockholders have left significant value on the table."

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