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Microsoft's talks with Yahoo make deal more likely

Microsoft Corp, the world's largest software maker, may have opened the door to price negotiations with Yahoo Inc after the two companies met last week, making a deal more likely.

The software maker sent executives to talk with Yahoo officials on Monday, their first meeting since Yahoo rejected a US$44.6 billion takeover bid, said a person familiar with the situation, who refused to be identified because the talks are private.

The discussions may signal a thawing of relations between the companies and may make Microsoft more willing to pay "a couple dollars more" than the original US$31 a share offer, Morningstar Inc analyst Toan Tran said in an interview. Microsoft's other option is to nominate a slate of directors to dominate Yahoo's board.

"Yahoo's definitely softened its stance in engaging in these informal talks," said Chicago-based Tran, who recommends buying Microsoft stock and doesn't cover Yahoo. He doesn't own shares in either company. "Previously, Yahoo wouldn't even come to the table with Microsoft."

Yahoo rejected Microsoft's offer on Feb. 11, 10 days after the bid, saying it undervalued the company. Yahoo, owner of the most visited group of Web sites in the US, said last month that the online advertising market will grow to US$75 billion by 2010.

Yahoo fell US$0.79 to US$26.71 on Friday in NASDAQ Stock Market trading, while Microsoft dropped US$0.66 to US$27.96. Yahoo traded at a 7.2 percent discount to the current US$28.79 value of Microsoft's cash and stock offer, compared with a 5.5 percent discount on Friday.

Yahoo spokeswoman Tracy Schmaler declined to comment. Microsoft spokesman Frank Shaw didn't return a message.

Microsoft said after the rejection that it reserves the right to take any steps needed to get its offer before Yahoo shareholders. Buying Yahoo would give the company second place in the Internet-search market in the US, with about a third of total queries. Google's share is almost 60 percent, the latest report from Reston, Virginia-based research firm ComScore Inc showed.

Yahoo engaged in talks with Rupert Murdoch's News Corp about a combination to block the Microsoft bid, a person with knowledge of the discussions told Bloomberg News last month. That agreement would bring together Yahoo and MySpace in a way that would let Yahoo remain independent, the person said.

Murdoch later told investors that he wouldn't "get into a fight" with Microsoft over Yahoo.

"Yahoo is kind of backed into a corner," Tran said. "Yahoo is playing a very dangerous game with shareholders' money. Microsoft could always walk away and Yahoo stock could take quite a fall."
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