Possible deal for Microsoft, Yahoo soon

By Daisuke Wakabayashi and Michele Gershberg

BOSTON/NEW YORK (Reuters) - Microsoft (MSFT.O) and Yahoo (YHOO.O) are making last-minute efforts to seal a deal before Microsoft takes its Yahoo bid hostile or abandons it altogether, sources familiar with the matter said on Friday.

Microsoft may raise its offer, now worth $42.2 billion (21.4 billion pounds) share from an initial $31 per share to complete a deal as soon as this weekend, a person familiar with Microsoft's thinking said.

But talks are at a "sensitive stage" and a deal is not certain, sources familiar with the situation said.

Investors bet an agreement was likely, sending Yahoo shares up 7 percent to $28.67 on the first news of significant contact between the sides since Microsoft's deadline for its initial offer expired last Saturday.

"My sense is Microsoft is considering raising their price to the mid-$30s," said a San Francisco-based portfolio manager who owns both Yahoo and Microsoft shares, but would not be identified due to a company policy regarding shares that are actively traded.

Yahoo had previously refused to enter formal negotiations with Microsoft, saying the initial price it made public in February did not properly value Yahoo's search and display advertising technology, or its overseas holdings.

Every dollar added to the per-share price amounts to about $1.4 billion extra for the total deal at current prices, and Microsoft shareholders have questioned how much higher the company should go.

"If it's $35 or less, I think it's fine," said the portfolio manager, whose company owned 21.2 million shares of Microsoft and 1.93 million Yahoo shares as of the end of December.