Microsoft boosts offer

New ante described as 'several dollars' more per Yahoo share

From wire reports

May 3, 2008

SAN FRANCISCO - Microsoft Corp. finally dangled a higher takeover bid in front of Yahoo Inc. yesterday, hoping to reach a friendly deal after weeks of saber rattling.

The Redmond, Wash.-based software maker upped its offer beyond the original value of $44.6 billion, or $31 per share, according to a person familiar with the matter. The specifics of the new offer weren't known by this person, who didn't want to be identified because the negotiations are confidential.

The New York Times, referring to unnamed sources, reported that Microsoft boosted the offer "by several dollars" per share, lending weight to the assertion by many market analysts that Microsoft can afford to pay up to $35 a share.

Representatives from Microsoft and Yahoo declined to comment on the negotiations. The talks were expected to continue into the weekend.

In an intriguing twist, Microsoft Chairman Bill Gates and Yahoo President Susan Decker were both expected to be in Omaha, Neb., this weekend to attend Berkshire Hathaway Inc.'s annual meeting. Both Gates and Decker are on the board of the company led by famed investor Warren E. Buffett.

The prospect of a sweetened offer lifted Yahoo shares 80 cents in extended trading after surging $1.86, or nearly 7 percent, to finish the regular session at $28.67.

The talks could break an impasse between the companies and prevent Microsoft from pursuing a hostile takeover of Yahoo, the second most popular Internet search engine. Microsoft Chief Executive Officer Steven A. Ballmer would use the purchase to bolster competition with Google Inc., the leader in the $41 billion online advertising market.

"The pressure that the board felt to do what's right for shareholders pressured management to start discussions," Canaccord Capital analyst Peter Misek said of Yahoo. "Wearing the board's shoes, I think I would be exposing myself to some pretty serious shareholder issues" if Microsoft had walked away.

Yahoo began pressing for a higher offer shortly after Microsoft made its unsolicited bid in February, which was originally valued at $44.6 billion, or $31 per share.

That offer, which was made half in cash and half in stock, is currently valued at $42.3 billion, or $29.40 per share, because Microsoft shares have declined.

Ballmer had held firm with the original offer, insisting it was fair in light of Yahoo's eroding profits during the past two years. He threatened an attempt to oust Yahoo's board if the 10 directors, including chief executive Jerry Yang, didn't accept the offer by April 26.

Now that Yahoo has forced the issue by letting the deadline pass, Ballmer appears ready to put more money on the table.

Microsoft's board reportedly met this week to consider raising the bid as high as $33 per share.

It wasn't clear whether Microsoft presented that figure, which would translate to about $47.5 billion for the deal, to Yahoo yesterday.

Several of Yahoo's shareholders are reportedly looking to sell their stakes for at least $35 per share, a price that would value the deal at about $50 billion.

Most analysts have predicted that Microsoft would buy Yahoo for $32 to $35 per share, so the news of yesterday's negotiations wasn't a major surprise.

"It's all going according to script," said Ken Marlin, a New York investment banker specializing in technology deals.

An acquisition higher than $31 a share would be the largest technology purchase in history, eclipsing Hewlett-Packard Co.'s $18.9 billion deal for Compaq Computer Corp. completed in 2002. Buying Yahoo would give Microsoft the most visited Web site in the United States and almost double its share of Internet searches there, according to researcher ComScore Inc.

The purchase also would turn Microsoft into the biggest seller of graphical-display ads. Sales of those ads in the U.S. might increase 39 percent to $8.19 billion in 2011, accounting for about 20 percent of the total market.

The deal wouldn't be enough to help Microsoft take the lead in the U.S. Internet search market, which Google dominates. The company accounted for almost two-thirds of search queries in the U.S. in March, compared with Microsoft's 9.4 percent and Yahoo's 21.3 percent.

The Associated Press and Bloomberg News contributed to this article.