Microsoft may borrow to fund Yahoo bid

Microsoft said Monday it may borrow money for the first time in its history to fund a portion of its $44.6bn (£22.7bn) unsolicited offer for Yahoo.

Microsoft also said it expects Yahoo's board to agree to the proposed deal quickly, but Yahoo said over the weekend that it expects to take "quite a bit of time" to weigh all of its strategic options including remaining independent.

A source familiar with Yahoo's strategy said it is considering a business alliance with Google to fend off Microsoft's offer.

Microsoft chief financial officer Chris Liddell said the software company may issue some debt to finance the cash portion of its 50-50 stock and cash offer for Yahoo, instead of drawing down its entire $21bn cash pile.

"It's likely we're actually going to borrow for the first time," Liddell said in an annual strategy meeting with analysts. "It's going to be a mixture of the cash we have on hand plus debt."

Liddell declined to say whether Microsoft was already buying Yahoo stock on the open market. He also did not give any information on what form of debt Microsoft will seek in the capital markets.

Microsoft made public on Friday its offer to pay Yahoo shareholders either $31 in cash or 0.9509 of a share of Microsoft common stock. The deal aims to create a formidable No. 2 to challenge Google's dominance in Web search and digital advertising.

Analysts applauded Microsoft's decision to take on debt.

"Microsoft can probably get a lower price of debt than equity," said Kim Caughey, senior analyst at Fort Pitt Capital Group. "I've often wondered why Microsoft sits on the pile of cash. It doesn't make a lot of financial sense."

Liddell, when asked why Microsoft chose to dilute its stock instead of making an all-cash offer, said analysts need to keep the offer in perspective with the $31bn that Microsoft spent in share buybacks and dividends in fiscal 2007.

Microsoft shares fell 26 cents to $30.19 in Nasdaq trading, while Yahoo shares rose 95 cents to $29.33.