SAN FRANCISCO -(Dow Jones)- With Microsoft Corp.'s (MSFT) $41.74 billion, bear-hug bid for Yahoo Inc. (YHOO) hanging in limbo, Wall Street analysts are increasingly anxious for the software giant to sweeten its offer.
Sources close to Microsoft have insisted the next move belongs to Yahoo, but several analysts said Friday that the software maker cannot afford to let much more time pass before raising its offer.
"Why are they waiting? Why don't they just write a bigger check?" said Martin Pyykkonen, analyst at Global Crown Capital.
Gene Munster, analyst at Piper Jaffray, said that each passing day of uncertainty will only increase the rate of attrition among Yahoo employees, reducing the Internet giant's value to Microsoft.
"They are going to have to make a move within the next week. The asset they want to buy slowly diminishes as they wait," he said.
The two companies are at odds over Microsoft's unsolicited bid. Yahoo's board on Monday rejected the offer, saying it undervalued the company. Microsoft insisted its offer was "full and fair." Several Wall Street analysts have said they expect Microsoft will sweeten its bid to $35-$36 per share.
Microsoft's original cash-and-stock offer Feb. 1 was for $31 a share, or $44.6 billion. Because of Microsoft's stock decline since then, the bid is now worth $ 41.74 billion and values Yahoo at $29.01 a share. Yahoo closed Friday at $29.66.
A New York Post story on Friday hinted of friction on Yahoo's board, with some independent directors worried that founder and Chief Executive Jerry Yang might be too emotionally tied to the company to act according to his fiduciary duty.
Dissension on the board and the lack of alternative suitors would appear to have strengthened Microsoft's hand over the past week, but analysts said Microsoft ultimately cannot afford to let this opportunity pass.
Sandeep Aggarwal, analyst at Oppenheimer & Co., said he expected a higher offer from Microsoft within days because the software giant needs Yahoo more than the Internet titan needs Microsoft.
He pointed out that Microsoft has more than $20 billion in cash, a monopoly in desktop software, one of the oldest online brands in MSN and 90% of the browser market, and it still hasn't been able to ramp up its Internet business.
"This company has very openly acknowledged that it cannot grow its online business on its own," he said.
But Microsoft is also under pressure from shareholders to refrain from sweetening its bid. The software maker's shares have fallen about 13% since making its offer, amid concerns about the complexity of integrating the two companies.
A research report from financial risk management analysis firm RiskMetrics Group on Friday noted that Yahoo's top shareholders were more likely to be concerned that Microsoft didn't overpay for Yahoo, because almost all of them have a larger stake invested in the software company.
One of those shareholders told Dow Jones on Friday that it would support Microsoft's bid - at the current offer price.
"From our perspective, we find the price is fine given Yahoo's prospects. If there were no deal, Yahoo would drop like a rock," said the source, who spoke on the condition of anonymity because the firm's policy is to not comment on its holdings.
The shareholder is also a top 20 stakeholder in Microsoft.
