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Originally published Wednesday, February 20, 2008 at 12:00 AM

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Microsoft hires proxy firm, but no sign Yahoo bid will be raised

Microsoft is getting ready to take its bid for Yahoo right to the Web portal's shareholders, even as analysts wait for a higher offer...

The Associated Press

Microsoft is getting ready to take its bid for Yahoo right to the Web portal's shareholders, even as analysts wait for a higher offer.

Separately, Yahoo adopted new severance packages that protect employees in the event of a Microsoft takeover.

Microsoft has hired proxy-solicitation group Innisfree M&A to help oust Yahoo's 10-member board, all of whom are up for re-election this year.

A source who is not authorized to speak publicly about the deal said Tuesday that Microsoft could spend $20 million to $30 million on that effort.

That's much less than the $1.4 billion each $1 uptick in Microsoft's bid would cost. Microsoft's offer two weeks ago was originally worth about $44.6 billion, or $31 a share. Based on Microsoft's closing share price Tuesday, the offer is now worth about $40 billion.

Microsoft's board plans to authorize a proxy battle this week, according to The New York Times DealBook blog. It has until March 14 to nominate a slate of directors for Yahoo.

Microsoft and its advisers declined to comment.

Election results would be announced at Yahoo's annual meeting. Last year's was held in June.

Microsoft also may simultaneously circumvent Yahoo's management and ask shareholders to sell their stock to Microsoft directly.

So far, Microsoft has given no signs it will raise its bid, even though a person familiar with earlier talks between the two companies said Microsoft was willing to pay at least $40 per share for Yahoo a year ago. That person spoke on condition of anonymity because the offer was never made public.

In an interview Monday, Microsoft Chairman Bill Gates said the software maker was not talking to Yahoo about raising its bid.

Analysts, however, still believe there's wiggle room.

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"I don't think what they're saying now precludes" a higher offer, said Sanford C. Bernstein & Co. analyst Charles DiBona.

DiBona also said he thinks Microsoft would prefer not to go hostile but will if no progress has been made by the March deadline.

Yahoo reiterated Tuesday that its board is "carefully and thoroughly evaluating all of the company's strategic alternatives."

The Web portal and search company's new severance plans — to take effect if Microsoft succeeds in its takeover bid — cover Yahoo's top executives and all full-time employees. The plans are designed to keep workers on board even if the company changes hands. They also could make it harder for Microsoft to move Yahoo staff to its Redmond campus and raise the overall cost of integrating the two companies.

Copyright © 2008 The Seattle Times Company

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