Yahoo! Inc. (NASDAQ - YHOO) announced first quarter revenues of $1.82 billion with a profit of $542.2 million, with a comparative 9% rise in revenues from last year accompanied by 27 cents boost in profits per share. Last year's Q1 profits were $142 million. Excluding exceptional items like the $401 million profit from China based Alibaba Group's IPO, in which Yahoo owns a stake, the Q1 profit was actually $150 million or 11 cents a share. Last year it was 10 cents a share. So all said and done, bottomline is that Yahoo's first quarter profits rose by only $8 million or 1 cent per share. Which is why Yahoo shares started nosing downwards (fall of about slightly less than 1% in the evening).

While these figures don't exactly inspire confidence in Yahoo's abilities or the success of its future plans, they did beat market forecasts by about 2 cents per share. But its simply not enough to turn the tide in Yahoo's favor and put the brakes on Microsoft's takeover bid. Speaking of which, the language from Yahoo Execs. seems to have softened a bit. While their stance remains unchanged, the reasons stated for their opposition to the deal seem to be shifting. You could interpret that as a kind of preparation to begin caving in. So you might start seeing some real action in May.

Suzy Jagger, New York correspondent for the Times, UK reports that Jerry Yang, the co-founder of Yahoo!, said yesterday that the online search engine may still recommend a hostile takeover from Microsoft after admitting that it had already spent $14 million in fees to advisers such as Goldman Sachs and Lehman Brothers to fight the approach.

Reuters reports that Yahoo Inc Chief Financial Officer Blake Jorgensen said on Tuesday the company was not opposed to selling to Microsoft Corp, but is against a deal that undervalues the company. "We are not opposed to a deal with Microsoft. What we are opposed to is seeing it at a value that discounts the underlying value of the company," Jorgensen said moments after the company announced its first-quarter results.

Microsoft, meanwhile, remains unmoved by the numbers, according to Kenneth Corbin, Internetnews.com. Microsoft CEO Steve Ballmer dismissed the impact of Yahoo's financial performance in comments made earlier today, according to a Reuters report. "We think we can accelerate our strategy by buying Yahoo and will pay what makes sense for our shareholders," Reuters quoted Ballmer as saying. "I wish Yahoo all the success with its results but it doesn't affect the value of Yahoo to Microsoft."

All said and done, no big change, but I think Yahoo probably lost their best oppurtunity to bring shareholders around to their own side of the ring with some truly spectacular results which would have gone a long way to assuring investors about Yahoo's long term viability as an independent entity. As of now, the ball is in Microsoft's court, and the next move will probably be another ultimatum from them which will likely result in the start of real negotiations between the two companies.

Be that as it may, all parties concerned are already gearing up for the big battle after the deal - Anti-trust lobbying in Washington. Jeanne Cummins, Politico.com, reports that lobbyists are salivating over an expected clash between three Internet giants that could move closer to the brink today. Google is mobilizing to block any merger that could threaten its own dominance in the search engine market. Google has retained Chlopak Leonard Schechter, a Washington public relations firm...They already had retainers with the King & Spalding law firm and the Podesta Group. Recently, they added Akin Gump Strauss Hauer & Feld, and signed on with the Franklin Square Group. Last year, Google spent $1.5 million on lobbying; Microsoft spent $9 million. Lobbying shops working for Microsoft include Elmendorf Strategies and Bryan Cave Strategies. Yahoo's Washington office is headed by David Hantman, former chief of staff to Sen. Charles Schumer (D-N.Y.). It has also recently hired Tracy Schmaler, the former spokeswoman for Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.).

All I can say is, keep the popcorn handy. This is going to one heck of a deal which will probably be cited by corporate law professors for decades to come - As an example of how not to pick a fight. What? You think I'm being overly cynical? Have you even thought about what's going to happen if, and when, Microsoft finishes jumping through all these hoops?

For starters, consider the cost of an employee retention program, which by estimate from Steve Lohr, New York Times, could add a few billion more to the final tab. A related question is one of mindsets. Again from the New York Times, Microsoft would face the task of integrating the culture of Yahoo into its own. When it comes to technology, Microsoft and Yahoo “are completely at odds with one another,” said Rob Solomon, chief executive of SideStep, a travel-related search engine. He was a Yahoo executive in charge of shopping, auctions, travel and real estate before leaving the company in 2006. Microsoft must figure out how to integrate the two complex and almost entirely incompatible software systems that the companies use to run their vast Internet data centers. Yahoo’s size may force Microsoft to take an unprecedented step and allow Yahoo to continue to operate its own infrastructure. For instance, the two companies have a large customer base for their free e-mail services that combined could be as large as 500 million accounts. Disrupting that service or forcing customers to change Internet messaging or e-mail addresses would alienate customers and decimate that base.

Microsoft faces Herculean odds of being able to consummate this deal. If and when they do, they face a big headache of integrating and re-branding Yahoo under their own empire. Then comes the question of what benefits, if any, they can get out the combined entity. Will it be less or more valuable than what it is now? Regardless of that, will it be able to offer Microsoft any additional help to fend off Google's incursions into Microsoft terrain? And last, but not least, even for a monstrously big company like Microsoft, liquidity is going to be an issue after they pay off Yahoo shareholders. What happens if Microsoft starts feeling the pinch afterwards? Will they be able to fund new aquisitions in the near future after this deal? Google certainly is not going to stop gobbling up companies. So in a couple of years, when you tote up the pros and cons, will this deal end up as a plus or a minus for Microsoft? I don't know, but what I do know is that by the time the dust settles on this deal, Steve Ballmer will be a lot older than he is now. And a lot more wiser.