Ballmer ready to walk on Yahoo! deal; airlines announce losses together; Wattles eggs on Circuit City

By Aaron Hochman-Zimmerman

New York, April 23 - Stocks went on a wild ride Wednesday, but finished on the sunny side of the street.

Perhaps the same will one day be true for Yahoo! Inc. and Microsoft Corp., which continued their wrestling match three days ahead of the start of Microsoft's threatened proxy fight.

No news came from an effort by the pilots of Delta Air Lines Inc. to reach a seniority agreement with Northwest Airlines Corp. However, the two did manage to sink their share prices with disappointing earnings announcements.

Meanwhile, shares of Circuit City Stores Inc. continued to drop as it received a letter from Wattles Capital Management LLC encouraging the electronics retailer to look carefully at the offer from Blockbuster Inc. in terms of passed up merger opportunities of 2003 and 2005.

Also, Luther King Capital Management Corp. stayed a step ahead of Platinum Equity Advisors LLC with a $12.10 per share bid for the Industrial Distribution Group Inc.

The Dow Jones Industrial Average ended better by 42.99, or 0.34%, at 12,763.22, while the Nasdaq Composite Index added 28.27, or 1.19%, to finish at 2,405.21.

The S&P 500 tacked on 3.99, or 0.29%, to close at 1,379.93.

Microsoft to take it by force or leave it?

As talk intensified over the fate of Yahoo! (Nasdaq: YHOO), the company's shares slid by $0.46, or 1.61%, to close the session at $28.08.

Microsoft's (Nasdaq: MSFT) chief executive officer Steven Ballmer left investors hanging on his intrigue: "[Microsoft] will pay what makes sense for our shareholders," he said Tuesday.

"This is the first time he's spoken like that," a source said, believing it left the door open for a better offer.

However, Ballmer seemed ready to turn his back on Yahoo!, telling reporters on Wednesday that Microsoft is "prepared to go forward without a merger."

Ballmer indicated that Yahoo!'s earnings were a positive for the still-struggling search engine, but did not change his feelings toward the company or the deal.

Both sides have been squaring off over Microsoft's unsolicited bid, which now stands near $29.88 per share, down from $31.00 on Feb. 1. In trading Wednesday, Microsoft shares were up $1.20, or 3.97%, to $31.45.

Microsoft has threatened to take the bid hostile on Saturday.

"We continue to see an acquisition by Microsoft as the most likely outcome for Yahoo! shares," said Susquehanna Financial equity analyst Marianne Wolk in a research report.

For all of its maneuvering, Yahoo! will only see a better offer from Microsoft if a third party brings a better offer, she said.

Although Ballmer claims to be ready to walk away from the deal, he has still retained the proxy specialists Innisfree M&A if Yahoo! does not concede by Saturday.

"We expect Microsoft to win a proxy fight, if one is waged, as much of the shareholder base has likely shifted toward speculators and arbitrageurs that would vote for the Microsoft slate of directors," Wolk said.

Northwest-Delta dive team

The airlines may not have merged yet, but their earnings were in sync as shares of Delta (NYSE: DAL) lost $0.24, or 3.53%, to $6.56 while shares of Northwest (NYSE: NWA) slipped by $0.37, or 4.95%, to $7.10 as the two reported $6.3 billion and $4.1 billion losses respectively.

The proposed merger partners spoke in unison about the pains of high oil prices.

"Northwest's first quarter performance was negatively impacted by the dramatic increases in the price of oil. Year-over-year our first quarter total fuel expense increased by $445 million, or 57.3%. The sustained high fuel prices represent an extraordinary challenge to Northwest and the entire airline industry. In response to fuel, we have taken a series of actions and will continue to monitor the impacts of fuel prices on our operation and are prepared to take additional actions as necessary," said Northwest president and chief executive officer Doug Steenland in a statement.

Meanwhile, from Delta: "Our need to respond to the pressures of dramatically rising fuel costs and a softening U.S. economy drove us to take a closer look at all options to protect Delta's future. The merger with Northwest will create an airline with the size, scale and global presence to weather economic downturns and compete long-term in the global marketplace," said Richard Anderson, Delta's chief executive officer in a press release.

"I appreciate the hard work of the Delta people and their commitment to ensuring that Delta maintains its leadership position in the industry," he added.

Light sweet crude was seen trading near $120 per barrel.

Wattles pushes Circuit City to improve

In retail, shares of Circuit City (NYSE: CC) shed $0.11, or 2.33%, to $4.62 as 6.5% stakeholder Wattles Capital sent a letter to the board urging "the board not to summarily dismiss any legitimate third-party interest in acquiring or merging with the company."

"On two separate occasions in the last five years, Circuit City's board has rejected what appeared to be legitimate interest in acquiring the company. In June 2003, the board rejected an offer of $8 per share. Then in February 2005, the board rejected an offer of $17 per share. Today, Circuit City's shares are valued at approximately $4 per share," Wattles said.

"Needless to say, stockholders would have been much better off if the board had accepted either of those offers," he added.

Before encouraging the merger, Wattles stated his faith in the company insofar as it does not have to surpass Best Buy in order to realize its potential.

Wattles Capital has also nominated five new directors.

Shares of Blockbuster (NYSE: BBI) lost just $0.01, or 0.35%, to finish the session at $2.88.

Luther King beats Platinum's offer

Meanwhile in manufacturing, shares of the Industrial Distribution Group (Nasdaq: IDGR) took on $0.35, or 3.00%, to end at $12.00 as it announced that late Tuesday Luther King Capital made a $12.10 per share offer, beating out Platinum Equity Advisors' $11.80 per share bid, according to a press release.

Platinum had agreed to purchase Industrial Distribution at $11.80 per share to stay ahead of Wesco Distribution Inc.'s (NYSE: WCC) original $10.30 per share offer.

In Wednesday's session, shares of Wesco gave up $0.74, or 1.86%, to close at $39.07.

Platinum Equity has until 5 p.m. ET on Friday to match or beat Luther King's offer.

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