Bets against Microsoft-Yahoo deal may be waning

NEW YORK (Reuters) - Skepticism about Microsoft's MSFT.O prospects of buying Yahoo YHOO.O may be waning, as short sellers appear to have backed away in the last few days from bets against Yahoo's stock rising.

A man walks by the logo of Microsoft in a shop of Brussels September 17, 2007. Scepticism about Microsoft's prospects of buying Yahoo may be waning, as short sellers appear to have backed away in the last few days from bets against Yahoo's stock rising. REUTERS/Sebastien Pirlet

When Microsoft’s $42 billion (21.4 billion pound) offer for the Web company was made public on February 1, the amount of Yahoo shares loaned out to short sellers and others spiked, but it has been falling since last Tuesday, according to Data Explorers Ltd, which tracks securities lending data.

Though stock-lending figures are slightly delayed, they are often viewed as a proxy for the interests of short sellers who are typically the biggest borrowers of stock.

On February 1, about 1.98 percent of Yahoo’s market capitalization was loaned out, according to Data Explorers. That figure rose to 2.72 percent on February 5, but as of February 11 it was back down to 1.95 percent.

“It just flatlined, then dropped,” said Michael Galvin, a manager at Data Explorers.

As Yahoo’s shares spiked on news of the Microsoft deal, a bet against Yahoo would be a bet that the deal would fall through or that the Web company’s stock would fall from the lofty deal-inspired levels where it has been trading.

Several Wall Street analysts have said the chances of alternate bidders for Yahoo emerging have grown remote, because any deal would have to be structured in such a way that it can compete with the roughly 60 percent premium implied by Microsoft’s bid.

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The last official short-selling data from Nasdaq showed about 3.2 percent of Yahoo shares were held short on January 31, before Microsoft’s offer was announced.

Yahoo rejected Microsoft’s takeover offer as too low on Monday, forcing the software maker either to sweeten the bid or adopt a hostile approach to clinch the deal.

Microsoft’s original cash-and-stock offer valued Yahoo at $31 per share, but that has declined along with Microsoft’s shares in the past two weeks.

Yahoo shares were up about 1 percent at $29.85 on Wednesday amid several reports that Rupert Murdoch's News Corp NWSa.N was in talks to combine MySpace and other Internet properties with Yahoo to fend off Microsoft's bid.

Editing by Braden Reddall