Microsoft Reportedly Sweetening Yahoo Offer

Although all is officially silent, reports have Microsoft and Yahoo engaged in serious merger talks, with Microsoft offering a significantly higher buy-out figure.

Microsoft drew a firm line in the sand in its bid to acquire Internet giant Yahoo: make a deal with us within three weeks, or we’ll engage in a hostile takeover attempt, either by replacing your board or taking our offer directly to investors.

That deadline passed in silence a week ago.

Although all is still officially quiet between the two companies, reports now have the firms actively engaging in merger negotiations. Contrary to Microsoft’s assertions that it would not be raising its $31/share offer, the Redmond software company is apparently offering Yahoo a significantly higher price in an effort to make the takeover a friendly negotiation rather than engage in a hostile takeover. Although there are no reliable reports of the price Microsoft may now be offering for Yahoo, industry watchers speculate that it’s in the neighborhood of $33 to $34 per share. Some Yahoo investors have been said to be holding out for a price as high as $37 a share, but it’s doubtful Microsoft will have to go that high in order to win the company.

If Microsoft were to offer $33 per share for Yahoo, the value of the deal would approach $47.5 billion; at a price of $35 per share, Microsoft would be paying about $50 billion for Yahoo.

Despite the protracted, complicated dodge-and-weave between the two companies, financial analysts have generally been expecting Microsoft to complete a takeover of Yahoo in due course, noting Microsoft has more than enough assets to cover the purchase. In general, Microsoft may feel that it’s better to pay a higher price for Yahoo upfront to conclude the transaction quickly than to engage in a months-long hostile takeover effort that will erode Yahoo’s value to Microsoft and significantly embitter its workforce. “I know exactly what I think Yahoo is worth to me, exactly,” MIcrosoft CEO Steve Ballmer told employees last week, according to a transcript filed with the SEC. “I won’t go a dime above, and I will go to what it’s worth if I think that gets the deal done.”