NEW YORK (Reuters) - Yahoo Inc (YHOO.O) is set to reject Microsoft Corps (MSFT.O) unsolicited bid, now worth 42 billion, as too low, a source familiar with the situation told Reuters on Saturday -- the first clear signal the board might be prepared to negotiate and sell the Internet media giant.
The Wall Street Journal had quoted an unnamed source as saying Microsofts offer of 31 per share was an attempt to "steal" the company and that Yahoo was unlikely to consider anything under 40 per share -- double its price in January.
At 40 per share, the value of the cash and stock deal would be worth 51.1 billion.
If completed, a merger of Microsoft and Yahoo would be the worlds largest of two computer technology companies and create a formidable rival to Internet search and advertising leader Google Inc (GOOG.O).
Yahoo has been considering options, including negotiating a higher price and striking a deal with Google to take over its search operations to keep Yahoo independent, the Journal said.
The newspaper reported Yahoos board met on Friday.
No alternate bidder has emerged and Wall Street has been betting that the likeliest outcome was for Yahoo boards to negotiate for a higher price from Microsoft.
"Are they really seriously about nothing less than 40 or is it a negotiating tactic to try to get a richer price?" Global Crown Capital analyst Martin Pyykkonen said.
"To me it sounds like a counter-negotiation tactic. Maybe they end up settling for 35, 36 or 37 a share."
MOST LIKELY OPTION
Last Monday, Citigroup analysts spelled out various scenarios, including having Yahoo seek a higher bid, find another bidder, see the deal derailed by regulators or strike a partnership with Google.
The Wall Street firm predicted a higher bid was the most likely option but that a price of 40 per share "would seem very aggressive" because Microsoft would have a hard time justifying it against Yahoos anticipated cash flows.
For that reason, Citigroup said paying 30 to 31 per share for Yahoo was "reasonable."
Microsofts initial offer fails to take account of the risks that a merger between the worlds largest software maker and Yahoo would be rejected by regulators, the Journal reported, citing "a person familiar with the situation."
In a series of meetings over the past week, Yahoos board has been weighing what alternatives the company may have.
Yahoo spokeswoman Tracy Schmaler declined to comment on any specific actions of the board.
"Yahoos board is carefully and thoroughly evaluating the Microsoft proposal in the context of all of the companys strategic alternatives," she said.
A Microsoft spokesman also declined comment.
Microsofts half-stock, half-cash offer was originally worth 44.6 billion or 31 per share -- a 62 percent premium to Yahoos stock price. Since then, Microsoft shares have fallen and the deal is now worth 41.8 billion.
A 40 price would represent a 109 percent premium to Yahoos close at 19.18 per share on January 31, before Microsoft went public with its bid.
Yahoo stock last traded above 40 two years ago, before competitive pressures from Google, product missteps, management defections and repeated restructuring moves chopped the price below 20.
(Additional reporting by Eric Auchard and Anupreeta Das in San Francisco and Daisuke Wakabayashi in Seattle; Editing by John OCallaghan)
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