Higher Bid for Yahoo Will Do It for Microsoft, Analyst Says

Published: March 26, 2008

by Alex Woodie

A report by a CitiGroup analyst Tuesday suggested Microsoft's unsolicited bid for rival Yahoo will ultimately prove successful, as soon as Microsoft ups its bid from $31 per share to $34 per share.

Microsoft and Yahoo have been waging a public relations battle since the software giant unleashed it $44 billion bid for the Web giant on February 1. With an expected proxy battle for control of Yahoo's board delayed until the company announces the date of its annual shareholders meeting--expected during the first part of June--Microsoft's "big, bold" play for Yahoo has turned into a bit of a yawner of late.

Thankfully, CitiGroup analyst Mark Mahaney shook things up a bit yesterday when he wrote in a note to clients that he thinks the deal can go through--just as soon as Microsoft raises its bid a few bucks.

"We believe that a Yahoo sale to Microsoft--at a price likely higher than the initial $31 bid--is the most likely outcome," Mahaney wrote. "While we continue to see no other competing bidders, we believe Yahoo is aggressively pursuing strategic alternatives. One possibility is a tie-up with Time Warner, whereby Time Warner would contribute its online content assets to Yahoo in exchange for a stake. We believe this could serve as a forcing function to a higher Microsoft bid."

The note raised hopes on Wall Street that the parties may be interested in sealing the deal sooner rather than later instead of waging a long and expensive fight. Yahoo's stock price is up more than 4 percent, a rise that was largely attributed to Mahaney's note.

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