Microsoft “will raise Yahoo bid”

A leading brokerage claims Microsoft will likely raise its $31-per-share offer for Yahoo.

Citigroup has upgraded Yahoo shares to “buy” from “hold” and raised its price target on Yahoo’s stock to $34 from $31, saying it believes Microsoft remains committed to its offer and “is capable of and willing to” increase that bid to conclude the deal.

“While we continue to see no other competing bidders, we believe Yahoo is aggressively pursuing strategic alternatives,” says analyst Mark Mahaney in a note to clients.

One possibility is a tie-up with Time Warner, whereby Time would contribute its online content assets to Yahoo in exchange for a stake in the company. “We believe this could serve as a forcing function to a higher Microsoft bid,” says Mahaney.

Citigroup says it continues to view a Microsoft-Yahoo deal as the most likely outcome.

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