Microsoft seen buying Yahoo without raising price

By Eric Auchard and Daisuke Wakabayashi-Analysis

SAN FRANCISCO/SEATTLE (Reuters) - Microsoft Corp's (MSFT.O: Quote, Profile, Research, Stock Buzz) offer to buy Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) will likely succeed, but it may not be the best use of the company's ample cash reserves, according to a poll of analysts by Reuters.

The stand-off between Microsoft and Yahoo has stretched six weeks since the world's largest software maker went public with its proposal. The Web pioneer subsequently rejected Microsoft's offer, which currently values Yahoo at $41.4 billion, saying the takeover bid "substantially undervalued" the company.

The Reuters poll finds Wall Street brokers who follow either company remain convinced that Microsoft will prevail in its takeover. Eight of eight Microsoft analysts surveyed and 14 of 15 Yahoo analysts believe Microsoft will get the deal done.

"Yahoo's options are becoming more limited and it makes Microsoft's offer look better," said Andy Miedler, an analyst at Edward Jones, who has a "hold" rating on Microsoft.

Twenty-one brokerages responded. Seven brokers have analysts who follow both companies and their votes were counted separately. In total, 33 financial analysts currently follow Yahoo and 40 analysts track Microsoft.

Analysts at three firms -- Morgan Stanley, Goldman Sachs and Lehman Brothers -- are restricted by their firms from publishing research on the merger as their investment banking arms are working on behalf of either Microsoft or Yahoo.

There is disagreement, however, over whether Microsoft must raise its half-cash, half-stock bid in order to succeed. A majority of analysts believe that Microsoft need not boost its bid beyond the current $31-per-share offer, although some argue it may need to sweeten the bid by making it an all-cash offer.

Twelve believe Microsoft will not alter its bid and succeed, while four expect it to keep the price at $31 but make it a more lucrative all-cash offer.