Microsoft and Yahoo try to work it out

Microsoft and Yahoo said to have intensified their merger talks

Microsoft and Yahoo have turned a corner and are finally negotiating in earnest about their possible merger, although a deal is far from imminent, according to media reports.

In anonymously sourced stories published online midafternoon Friday in the US, both The New York Times and The Wall Street Journal reported that talks between the companies have suddenly gathered steam.

It has been three months since Microsoft announced its cash-and-stock bid for Yahoo, valued then at US$44.6 billion but now worth about US$42 billion because Microsoft's stock has lost value.

At the time, Microsoft's management sounded confident that the acquisition would proceed swiftly, but Yahoo's board threw back the offer in Microsoft's face, saying it undervalued the company.

Since then, talks between the companies have reportedly been few and unproductive, as Yahoo sought alternative deals and Microsoft threatened to go hostile or, lately, to walk away.

As Yahoo let lapse Microsoft's deadline to wrap up negotiations on Saturday, everyone with a stake in the deal has been anxiously awaiting Microsoft's next move.

As recently as Friday morning, consensus was that Microsoft would announce a hostile takeover strategy, such as launching a proxy fight to replace Yahoo's directors with its own slate of candidates that shareholders could elect at their next annual meeting.

However, now it appears that the companies have made progress over the so far apparently insurmountable disagreement over price, prompting Microsoft to stay at the negotiating table in the hopes of reaching a friendly deal.

According to The Journal, Microsoft indicated this week it would be willing to raise its bid to as much as US$33 per Yahoo share, below the US$35-per-share minimum that major shareholders are hoping for.

Microsoft's offer is currently valued at about US$29.30 per share, according to The Times, whose sources said that a US$34 per share offer could be a happy medium and get the deal done.

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