Microsoft may increase Yahoo Offer

...according to online reports

7 February 2008 10:49 GMT / By Katie Scott

Analysts are claiming that Microsoft may soon raise its $44.6 billion offer for Yahoo.

Wall Street is waiting with bated breath on the outcome of negotiations between Microsoft and Yahoo - which have been complicated by Google's bid to set up an alliance with its rival search engine in an attempt to scupper the computing giant's plans.

Reuters is reporting that skeptical investors are trading Yahoo shares at a 6.5% discount to Microsoft's unofficial offer price.

However, UBS set a price target for Yahoo shares on Tuesday, which was above Microsoft's offer at $34.

UBS believes Microsoft "will do what is needed to get this deal done", adding in a note: "In a hostile deal the acquirer usually does not lead with its best and final offer and we would not be surprised to see Microsoft sweeten the pot somewhat to make the decision easier for Yahoo's board".

Citi agreed that a higher Microsoft bid was highly likely at a 40% chance.

It has a $31 target price for Yahoo.

"It's reasonable to assume that Microsoft might be willing to increase its offer", analyst Mark Mahaney said in a note.

Citi gave a 20% probability that Yahoo would accept the current bid and a 25% chance that Yahoo would hire Google to run its search operations in a lucrative contract. It saw a 10% chance regulators would block a deal and a 5% chance that another bidder will emerge, reports Reuters.

Yahoo shares closed on Tuesday at $28.98, more than $2 below the $31 price Microsoft offered last week.

Microsoft shares have dropped about 12% since that offer was made.

Yahoo is still considering the proposal.