(Agencies)
Updated: 2008-04-08 09:19

Microsoft's stock price was unchanged Monday at $29.16 Monday. That left the value of Microsoft's bid at $29.36 per share, or about $42 billion.

If not for Microsoft's bid, many analysts believe Yahoo shares would be trading around $15 per share, based on the erosion of other high-tech stocks during the past two months. At $15 per share, Yahoo would have market value of about $21 billion (euro13.4 billion).

Yahoo shares fell 66 cents to finish Monday at $27.70.

In their Monday letter, Bostock and Yang asserted Yahoo stockholders with significant stakes in the company agree Microsoft's bid isn't high enough, especially since the offer has declined by more than $2 billion.

Nevertheless, an analyst for an investment fund that owns Yahoo shares predicted it would be difficult to turn down Microsoft's offer if the bid goes to a stockholder vote. "Most shareholders are going to go with the bird in hand rather than risk losing money on the stock," said the analyst, who asked not to be named because he wasn't authorized to speak publicly.

If Microsoft takes its bid directly to shareholders, the vote would be held at Yahoo's annual meeting, which must be held by July 12.

The money manager of another investment fund that owns about 1 million Yahoo shares applauded the company for trying to fetch a higher bid, but wants a deal to be negotiated without further acrimony.

"Part of is a normal process, but I am also worried about too many egos getting in the way," said the manager, who wasn't authorized to speak publicly.

Most of Yahoo's major shareholders also own significant stakes in Microsoft. The cross-pollination means some Yahoo shareholders might to lose more money than they could make from a higher Microsoft bid if raising the offer causes Microsoft's stock to decline.

To protect the value of its stock, Microsoft might revise its offer so it consists of more stock, Hilal said. Throwing more cash on the table wouldn't hurt Microsoft's market value as much because the company wouldn't be undermining its earnings per share by issuing more stock.

After a long stretch of declining profits, Yahoo says it is on the verge of a turnaround that will become more evident in 2009 and 2010 as its Internet ad revenue accelerates.

Yahoo's optimistic forecasts so far haven't swayed Wall Street.

Yankee Group analyst Daniel Taylor thinks Yang and Yahoo's other directors are digging in their heels in hopes that they will get the chance to prove the skeptics are wrong.

"They want to be able to show the breadth and depth of what they have been trying to do all these months," Taylor said. "This battle is going to go right down to the wire."

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