I’ve been watching the news relating to the Microsoft bid for Yahoo very closely and I think that an increased bid around $40-45 per share could be in the offing. I am considering entering a position in Yahoo for this very reason as it appears that there is very little worry of any antitrust issues with a potential merger. The more Google cries about it, the more regulators will see that the competition is needed.

Tonight a story broke about the potential for an increased bid and it will likely push shares of Yahoo up to and perhaps above the current $31 per share offer. UBS is setting a price target for Yahoo at $34 per share which would mean a little less than 10% premium over the current offer. I feel that is too conservative for a potential offer increase.

The best scenario here for an astute trader would be a rejection from Yahoo’s board of Microsoft’s current offer, which would send the stock down to $20 or lower almost immediately. Picking up shares at that price could prove very profitable should Microsoft come back with a higher offer.

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