Yahoo! shareholders have got to be watching their stock creep above $30 today for the first time in months. This is the first time it's been above $30 since early November, and more importantly, the first time since Microsoft made its $31 per share offer.
An arb (arbitragers are those who invest in takeovers play securities of the companies involved wagering on the likely outcome) tells me the stock is trading as if Microsoft were paying $33 or more and that fits with the current speculation on Wall Street.
The stories about Yahoo! talking to News Corp about a venture and ownership stake have juiced the rumor mill with speculation Microsoft will now step up with a better offer, one way or other.
There's two ways this is being viewed. One is that Yahoo! has no better plan and it's just blowing smoke, hoping to make Microsoft raise its offer. The other way it's being discussed is that Microsoft sees Yahoo! shaking the bushes and will want to make its bid look even better, especially since its stock has been drooping, reducing the value of the deal.
Either way, it gets to the story that Microsoft raises its offer, as Wall Street has expected since day one. It's not clear that's happening, but that's the idea out there. One arb tells me that based on Microsoft's current offer, Yahoo! should trade at a $3 or so discount, unless of course Microsoft added cash or set a collar on the deal.
A source close to the situation tells us that Yahoo has indeed been speaking with News Corp about a partnership around My space and other News Corp web assets, which would also involve News Corp taking a stake in Yahoo!
But as of now, the Street does not think that deal is likely to materialize. Another arb said a deal with News Corp wouldn't necessarily preclude Microsoft from completing a deal with Yahoo! It would just complicate and lengthen the process.
Yahoo! Chairman Jerry Yang sent a letter last night to shareholders last night reaffirming the company is looking to maximize shareholder value. That language was also an encouragement to traders who think Yahoo! will be open to a Microsoft deal if it sweetens its bid.
There's speculation the coming three day weekend would be the perfect time for Microsoft and Yahoo! to start working towards a negotiated deal. As of now, I don't get a sense this is moving in a hurry though.
It would be an advantage for Microsoft to negotiate a deal, rather than go hostile with a bid made straight to shareholders. Yet, it did hire a proxy firm and it has until March 14 to propose its own slate of directors for Yahoo's board. Arbs believe it is starting to look for candidates.
The question is whether Yahoo!'s board would get serious about a deal like the one involving News Corp in the face of a bid from Microsoft, which clearly helped lift its withering stock.