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AOL interest in Yahoo may push Microsoft

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Bloomberg News / April 11, 2008

SAN FRANCISCO - Yahoo Inc., resisting a $44.6 billion takeover by Microsoft Corp., might wring a higher offer out of the software maker after finding an alternate suitor in Time Warner Inc.'s AOL unit.

A new partner may help chief executive Jerry Yang turn around investor confidence in Yahoo. Less than a week ago, his options appeared limited after Microsoft CEO Steve Ballmer threatened to cut his bid if the board refused to give in. With AOL in the fray, a better price is possible, and The New York Times said yesterday News Corp. may join Microsoft's offer.

"Microsoft, if it wants to stay in the game, is going to have to increase its bid," Larry Haverty, associate portfolio manager at Gamco Investors Inc., said. "Yahoo is a strategic necessity for Microsoft."

Haverty said $35 a share is a fair value for Yahoo. His firm managed about $31 billion in assets as of Dec. 31, including shares of Microsoft and Yahoo. His estimate is 20 percent more than the implied value of the half-cash, half-stock deal.

If Microsoft teams up with Rupert Murdoch's News Corp., the transaction would unite Microsoft's MSN, Yahoo, and News Corp.'s MySpace, the Times said.

Yahoo, owner of the most-visited US website, rose 82 cents, or 3 percent, to $28.59 on the Nasdaq Stock Market. Microsoft rose 22 cents to $29.11, valuing its offer at about $29.34 a share.

"The AOL-Yahoo thing reminds me of two men drowning, both grabbing on to each other," said Mike Holland, who oversees more than $4 billion at Holland & Co. in New York. "It usually doesn't end in a pretty way or a smart way or an effective way."

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