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In the wake of Microsoft’s unsolicited takeover bid, Yahoo has been searching for a way to appease its disappointed shareholders while simultaneously remaining independent. With its shares down roughly 30% from an offer-driven high, it may be time for the Sunnyvale, Calif.-based Internet services provider to query its own search engine for its next move.

The pressures weighing on Yahoo are three-fold: the Internet advertising market has been hurt by a slowing U.S. economy, billionaire investor Carl Icahn has begun a proxy battle to unseat Yahoo’s board, and the company has apparently lost the opportunity to sell to Microsoft at a significant premium. Since announcing that merger talks with Microsoft ended on June 12, Yahoo shares have fallen more than 20%.

According to Citigroup analyst Jason Bazinet, Time Warner’s AOL segment has had a similarly turbulent 2008, and a deal between Yahoo and Time Warner could provide long-term benefits for both stocks. Bazinet pointed out that the migration to a free AOL service hasn’t gone as smoothly as investors had hoped, the division’s recent acquisition of the social media network Bebo was frowned upon by investors and the dial-up business continues to contract. “The strategic logic (for a deal) is arguably compelling,” Bazinet said, “and the potential financial benefits are sizable.”

Citigroup estimates that a sale of the AOL unit to Yahoo could create $900 million in annual savings from duplicative content payments, sales force reductions, and the elimination of redundant research and development. Additionally, Yahoo would gain display scale and keep its search options open, while Time Warner would gain Internet scale via a passive equity stake in a larger entity by exchanging its advertising business for a position in Yahoo.

Yet, the broker expects a deal to be more positive for Time Warner. Citigroup estimates between 33 cents and $3.45 per share of earnings gains for the media and entertainment company, assuming a bid for AOL between $8 billion and $12 billion. For Yahoo, its share of synergies could be worth between 74 cents and $3.06 per share in earnings, but the transaction would likely remove any remaining Microsoft-inspired premium. Therefore, Citigroup expects Yahoo’s investor reaction to be muted on the purchase of AOL.

“The bottom line is that we think Yahoo and AOL could merge,” Bazinet said in a note to clients. “Although given the potential Microsoft-inspired premium that may still be embedded in Yahoo’s equity, the near-term benefits would seem materially greater for Time Warner than Yahoo.”

As the U.S. economy continues to dip into recession territory, the weakening dollar has stoked the predatory appetite of foreign companies looking to hedge their emerging-market positions with a “safer,” albeit slower-growing, stake in the U.S. It’s no surprise, then, that the buzz has grown louder in recent days about the potential for Belgian brewer InBev to make an unsolicited bid for Anheuser-Busch.

“Given the U.S. dollar’s weakness against many global currencies, particularly the Euro, fetching A-B would now be materially cheaper than it wold have been one or two years ago (all else being equal),” Merrill Lynch analyst Christine Farkas said in a note to clients. Despite neither company officially commenting on the merger speculation, the issue has been a hot topic on Wall Street after the Financial Times’ FT Alphaville said last week that a $46 billion offer (valuing shares of Anheuser-Busch at $65 per share) was discussed at length at an InBev board meeting. At the time, the offer price represented a 24% premium above Anheuser-Busch’s $52.58 closing price.

Though the deal speculation has been met with mixed opinions on Wall Street, the general consensus among analysts is that Inbev would use an Anheuser takeover for the cost savings and a stake in a developed market.

“The reasoning behind a combination is that InBev would create the fifth-largest consumer products group in the world, hedging its emerging market exposure and giving it a leading position in the large and mature U.S. market,” Farkas said. The analyst also pointed out that with the purchase of Anheuser-Busch, InBev would become the largest brewer in the world with nearly 25% of global volumes, but the company would still need to believe that entering the “sluggish” U.S. market would add to its focus or current strategy of targeting organic global growth and regional/emerging market acquisitions.

UBS said cost savings extraction would be InBev’s main attraction of acquiring Anheuser-Busch, noting that the Financial Times article estimated $1.4 billion in savings. Assuming the synergies estimate to be accurate, UBS estimates a 4.9% earnings-per-share addition in the first year and 16.8% by year three. If the bid price were to raise to $70 (perhaps in the case that InBev takes the offer hostile if A-B is unwilling to engage in friendly talks), UBS sees an EPS addition of 9.9%, while Merrill Lynch estimates more than 30% if debt financing is used and around 20% if combined with equity.

Some speculate that A-B shareholders may be in favor of a deal, given that the company’s share price has generally held within a range of $46 to $52 for the last five years (excluding its recent run-up to an all-time intraday high of $58 after the Financial Times article).

However, it doesn’t appear that Chief Executive August Busch IV or his father, August Busch III, want to sell the company, and Modelo’s agreement with A-B and its bylaws prohibit transfer or sale of a stake to a competitor (A-B owns a 50.2% economic stake in Modelo, a Mexican brewer).

With the downtrodden U.S. economy leaving many consumers with little income to spare for this month’s best-seller novel, the retail book industry has come under pressure recently.

On Wednesday, it appeared the cover might be closing on Borders Group, according to a Wall Street Journal report, which said that the nation’s largest book chain by sales, Barnes & Noble Inc., is studying the possibility of acquiring the Ann Arbor, Mich.-based Borders.

Stifel Nicolaus analyst David Schick confirmed the book industry’s woes, citing the firm’s proprietary “READ” survey which indicated that plans to spend on books during the first quarter ranged from down 6% to flat (with the average a 3% drop) compared to the same time frame in 2007. “It’s fairly obvious the book business is under pressure from surging gas prices, consumer balance sheet repair, and reduced traffic to casual dining establishments,” Schick said.

Indeed at Starbuck’s, whose popular cafes attract consumers in search of a tall mocha grande and a comfortable place to read, traffic is declining.

Then there is a recent study from the National Endowment for the Arts, which said Americans are spending less time reading in general, as nearly 27% of college freshman reported reading zero books for pleasure or enrichment in 2007. On the other hand, the percentage of 18- to 29-year-olds with home broadband connections climbed 25 points from 2005 to 2007.

Of particular interest, from 1985 to 2000, the average annual spending on books by a consumers decreased 14%; the study said there are no signs that the U.S. book market will pick up dramatically anytime soon: Between 2001 and 2011, the compound annual growth rate for consumer book sales is projected to be only 0.2%.

When Borders Group reported a decline in domestic Borders superstore sales and in the specialty sales of its Waldenbooks unit in March, the company began a strategic alternative review process, effectively opening its business up for bidders. Barnes & Noble is reviewing the possibility of acquiring Borders, and “there are multiple strategic buyers and potential private-equity investors,” according to the Journal report.

C.L. King & Associates estimates that a merger with Borders could add to Barnes & Noble’s annual earnings-per-share by 83 cents on a pro-forma basis. The firm said potential benefits of a deal could be realized in store consolidation, the elimination of redundant corporate and e-commerce costs, and a more efficient distribution infrastructure.

Merrill Lynch, however, sees regulatory hurdles in a merger, while protectionist legislation preventing volume discounts for book purchases could also prohibit meaningful buying synergies.

The skyrocketing price of oil has sent tremors into all corners of the economy, but it’s likely that few areas have seen as powerful or negative an impact as the airline industry, which JPMorgan expects will report a record operating loss of $7.2 billion in 2008. It reported profits of $6.6 billion in 2007, and the swing is thanks almost solely to fuel prices, which are expected to rise $17.5 billion over 2007 levels. One trembles in the face of such numbers, and JPMorgan said that legacy bankruptcies and merge-at-all-cost attempts in the sector “are a question of when, not if.” It added that airline companies would engage in value destructive behavior “as they attempt to merely outlast one another.”

Compounding this problem is the belief that a merged airline would do little to offset fuel prices. The idea that it would “leaves out the fact that mergers take a lot of time and money, and don’t do diddly to reduce the price of a gall of jet-A,” said Michael Boyd, as quoted in an earlier post. Meanwhile, a move by the federal government is also expected to have little to no effect.

If airlines are to withstand the new fuel prices, JPMorgan said they would need to cut capacity by 20% in 2008. Current estimates put the change in capacity as just a 2% drop. Meanwhile, the prospect for traffic growth looks dim. On May 13, the Air Transport Association forecast a “marginal” 1% decline in passengers over the busy summer traffic season.

Instead of trimming the capacity fat, JPMorgan said the airlines are stockpiling cash in an attempt to outlast each other. But raising capital, it said, “buys time, but not much else.” The additional time could allow for fuel prices to drop, or for competitors to drop dead.

Waiting for competitors to die isn’t exactly the most responsible business plan, especially in a sector where JPMorgan considers most of the members having at least some risk of running into bankruptcy.

“If it sounds like we’re panicking,” the firm said, “it’s because few managements appear to be.”

“I don’t throw darts at a board,” said Gordon Gekko of “Wall Street” fame. “I bet on sure things.”

Warren Buffett may seem like a gentle investment genius, but he certainly has a little Gekko in him.

Buffett’s Berkshire Hathaway is putting up more than $6 billion to help fund Mars Inc.’s purchase of Wim. Wrigley Jr. Co., not just because he believes so much in the companies and their respective brands or because he loves the taste of their chocolate, but because he was basically handed a sure thing.

Buffett’s Berkshire Hathaway will provide $4.4 billion of subordinated debt to help fund the deal, then buy a $2.1 billion minority equity interest in the Wrigley Co. subsidiary at the closing of the deal. The “sure thing” is that Berkshire will be buying the stake “at a discount to the share price being paid to stockholders of Wrigley.”

It’s no wonder he said in an interview on CNBC that nothing can go wrong with the Mars and Wrigley brands.

It doesn’t take a genius to make money on a deal where you buy stock below the price it’s being sold on the same day. Then again, anyone that has $4.4 billion to put up to get a chance at a sure thing is by definition a genius.

U.S. airlines have posted nearly $11.5 billion in losses so far this year, and the first-quarter reporting period still has several weeks left to run.

With crude oil futures at $118 a barrel, consolidation among carriers isn’t going to save the industry. The idea that a merged airline would lower costs to offset the rising expense of jet fuel, or jet-A, sounds good, said aviation consultant Michael Boyd, except …. it isn’t true. The premise “leaves out the fact that mergers take a lot of time and money, and don’t do diddly to reduce the price of a gallon of jet-A.”

What it takes, analysts say, is a lower fuel bill. Or in two words: flying less.

The industry’s fuel expenses could rise to more than $15 billion in 2008, JPMorgan estimates. “All else equal, this will necessitate an industry capacity cut approaching 20%, a level that has never been quickly achieved absent liquidations.” Several discount airlines have already chosen bankruptcy, including ATA and SkyBus.

“While it may sound callous to frame fuel’s rapid ascent against the far greater tragedy of 9/11, the math is indisputable - at current fuel prices, a similar attack on the industry’s profitability appears underway,” JPMorgan analyst Jamie Baker wrote in a recent investor note.

Northwest and Delta, which have proposed merging, are responsible for the bulk of 2008’s first-quarter losses. They took small steps Wednesday toward cutting their seating capacity.

Delta will remove 15 to 20 mainline and 60 to 70 regional jet aircraft from its operations by the end of 2008; it said system capacity for the second half of 2008 would fall as much as 2% from 2007, with domestic capacity down 9% to 11%.

Northwest said that following the peak summer travel season it plans to reduce its scheduled domestic system capacity by 5% from its original 2008 plan, removing from service 15 to 20 aircraft.

Some 860 50-seat and smaller regional jets are expected to exit U.S. carrier fleets in the next 10 years, according to Boyd. “The declining economics of the aircraft mean a big percentage of these machines need to get retired toute suite. And that means retired. To the desert, mostly. Probably in even larger numbers, and much sooner, based on where jet-A is headed.”

Delta Air Lines Inc. and Northwest Airlines Corp. are giving themselves until the end of 2008 to win merger clearance from the Justice Department. Getting the Northwest pilots on board with the deal might take at least that long, if at all.

The two groups of pilots have been meeting since the beginning of the year, agreeing on at least a collective bargaining deal and an equity stake in the merged airline but remaining far apart on merging pilot seniority lists. After Delta pilots rejected arbitration and a call by Northwest’s pilots to delay Monday’s announcement, the lines were drawn.

“One can only conclude that the Delta pilot leadership and Delta management have made an arrangement to try to disadvantage the Northwest pilots economically and with respect to our seniority,” said Dave Stevens, head of Northwest’s pilot’s association. “No pilot group is going to put up with this. No amount of money can sustain a carrier which creates this level of discord.”

Delta pilots agreed to a new collective bargaining agreement through 2012, which would give them a 3.5% equity stake in the new carrier, a 5% pay increase starting in 2009 and a two-year exemption from furloughs. Delta’s pilot’s union leadership, in a letter to members, said it “unanimously adopted and enthusiastically endorses” the new terms.

But little was said in Delta’s announcements of the Northwest pilots, other than Delta saying it would try to get a deal done in the next six to eight months.

Ed Bastian, Delta’s president and chief financial officer, said “there will be continuous sort of best efforts to try to get to that single agreement and to get to a combined seniority list prior to closing.” He also said, ”There is a substantial amount of time to allow the parties to do that and if that turns out to be the case, that will be a milestone event that no other airline merger will have even come close to accomplishing.”

He’s not exaggerating. Northwest’s pilots are firmly against the deal. “As hard as a standalone course may be in these economic times, it is our judgment that it carries less risk than the merger path which now lies before us,” Stevens wrote to the union members. “For that reason, we will be turning our efforts to stopping this merger.”

The integration issue could hang around for some time, even after the deal is complete, said Avondale Partners analyst Bob McAdoo. “Given the history of these types of agreements, we would rather bet on the seniority issue dragging out for months after the merger is complete.”

For proof, look to the U.S. Airways takeover of America West, announced three years ago and arguably the last successful major airline merger in the U.S. The merger of the two airlines still hasn’t brought about a full integration of its pilots or flight attendants.

Maybe it’s a case of two wrongs making a right. Blockbuster’s newly-public proposal to buy Circuit City for $6 a share was met with surprise and skepticism by both analysts and Circuit City itself, with some questioning why the movie renter would ever want to buy the struggling chain of electronics stores whose shares are down 79% over the past 52 weeks.

Blockbuster has been struggling itself. Shares are down 52% over the same period. Given this, the logic behind the proposal might be explained by the line in “Rocky” where Sylvester Stallone explains his love for Adrian: “She’s got gaps, I’ve got gaps, together we fill gaps.”

It may indeed be a match made in heaven, but so far the reaction has been negative and marked by confusion. “We fail to understand the strategic value of the company’s hostile bid and believe the combination has the potential to divert management and financial resources from [Blockbuster's] nascent recovery,” BMO Capital Markets said, downgrading the company to market perform.

In a conference call, Blockbuster Chief Executive James Keyes argued that the potential benefits of the deal were “simply too attractive to ignore.” If the deal goes through, he added, it would result “in a compelling consumer proposition that offers an integrated suite of products with the flexibility and convenience that our peers could simply not match.”

Keyes said that Blockbuster would be able to offer new product categories that are “designed to carry the exact content we provide,” or in other words, DVD players and game consoles. Meanwhile Circuit City could offer additional content and subscription services to its customers, apparently on the theory that since people don’t want to buy Circuit City’s products, they might want to borrow them.

Analysts aren’t convinced. Credit Suisse asked why Blockbuster even needed to buy Circuit City to achieve its stated goals: “What Blockbuster suggests they can offer because of the merger seems like something they can do without buying Circuit City, unless the cash on the company’s book is really what they are looking for,” Credit Suisse said.

While analysts are skeptical, Blockbuster already has its work cut out in trying to win over Circuit City, which said it wasn’t sure Blockbuster’s takeover could be financed. Noting the size of the offering in relation to Blockbuster’s market cap, Circuit City has refused to provide additional due diligence until it is more comfortable with the financing arrangement.

Given the reaction so far, the dream of buying a DVD player in the same place you rent your DVDs may not be something that’s coming soon to a retailer near you.