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Yahoo to turn down Microsoft bid

The Wall Street firm predicted a higher bid was the most likely option but that a price of $40 per share "would seem very aggressive" because Microsoft would have a hard time justifying it against Yahoo's anticipated cash flows.

For that reason, Citigroup said paying $30 to $31 per share for Yahoo was "reasonable".

Microsoft's initial offer fails to take account of the risk that a merger between the world's largest software maker and Yahoo would be rejected by regulators, The Wall Street Journal reported, citing "a person familiar with the situation".

In a series of meetings over the past week, Yahoo's board has been weighing what alternatives the company may have.

Yahoo spokeswoman Tracy Schmaler declined to comment on any specific actions of the board.

"Yahoo's board is carefully and thoroughly evaluating the Microsoft proposal in the context of all of the company's strategic alternatives," Schmaler said.

A Microsoft spokesman also declined to comment.

Microsoft's half-stock, half-cash offer was originally worth $44.6bn or $31 per share -- a 62 per cent premium to Yahoo's stock price. Since then, Microsoft shares have fallen and the deal is now worth $41.8bn.

A $40 price would represent a 109 per cent premium to Yahoo's close at $19.18 per share on 31 January, before Microsoft went public with its bid.

Yahoo stock last traded above $40 two years ago, before competitive pressures from Google, product mis-steps, management defections and repeated restructuring moves chopped the price to below $20.