Microsoft board still mulling next Yahoo move: Report

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Microsoft's lengthy internal debate over how to proceed illustrates the tremendous stakes underlying a deal that could reshape the Web for millions of consumers and thousands of advertisers.

A Yahoo takeover also would represent by far largest acquisition in Microsoft's 33-year history.

Yahoo's board maintains the Sunnyvale-based company is worth substantially more than Microsoft's initial bid of $44.6 billion, or $31 per share. The value of the cash-and-stock offer had declined to $29.06 per share Wednesday, reflecting a downturn in Microsoft shares since the saga began.

Even a sweetened offer of $33 per share might not be enough to wrap up a friendly deal because some of Yahoo's major shareholders have signaled they want at least $35 per share, or about $50 billion.

Ballmer and Bear Stearns CEO Alan Schwartz, a Microsoft adviser, have been lobbying Yahoo shareholders to rally support for a lower price, the Journal said.

Most analysts have been predicting for weeks that Microsoft could raise its offer as high as $35 per share. Microsoft, though, has insisted there is little reason to up the ante, given Yahoo's recent financial malaise and the absence of competing bids.

Microsoft also may be trying to hold down the price because it plans to spend a substantial sum on incentives aimed at retaining Yahoo's top executives, engineers and other key employees if it the proposed marriage goes through.

The software maker has earmarked about $1.5 billion the equivalent of nearly $1 per Yahoo share for retention packages, according to details that emerged in a court hearing held in a shareholder suit filed against Yahoo for rejecting the Microsoft bid.

A transcript of the March hearing quotes a Yahoo lawyer telling a Delaware judge that minutes from a Feb. 8 Yahoo board meeting reveal Microsoft had stated its intention to make the retention payments.

Yahoo's directors haven't specified an acceptable sales price, but some analysts believe they may want close to $40 per share a price that Microsoft indicated it was willing to pay when the two sides held private discussions in early 2007.

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