Report: Microsoft weighing Yahoo takeover

NEW YORK (CNNMoney.com) -- Shares of Yahoo soared in pre-market trading Friday after published reports suggested that Microsoft is pushing the Internet bellwhether to enter merger negotiations.

In a story first reported by the New York Post, and then reported by the Wall Street Journal on its Web site Friday, Microsoft (Charts, Fortune 500) is hoping that a combination Yahoo (Charts, Fortune 500) could help it catch up in the growing segment of online advertising and make up for it being outbid by rival Google (Charts, Fortune 500) for other companies in the space.

Yahoo shares shot up $5.73, or nearly 20 percent, in pre-market trading on the report, to $33.85, while Microsoft were little changed.

Yahoo closed Thursday with a market value of about $38 billion. The Post reports that Wall Street sources it talked to put the value of the company at about $50 billion, or a bit more than 30 percent above Thursday's close.

Microsoft previously met with Sunnyvale, California-based Yahoo (Charts, Fortune 500), but the search engine company has so far declined the advances, according to the reports.

Sources told the Post that Microsoft has become more serious about a potential deal after getting beaten by rival Google on several recent big deals.

Google (Charts, Fortune 500) outmaneuvered Microsoft to purchase Internet advertising company DoubleClick in April, as well as for a key contract with AOL in 2005, according to the paper.

Google is paying $3.1 billion to buy DoubleClick from private equity firm Hellman & Friedman, which had taken it private two years ago in a $1.1 billion deal, a further sign of the strength in the online advertising sector.

The Post reported on Tuesday that Microsoft might be interested in another online advertising firm, 24/7 Real Media (Charts), a report that sent shares of that small company's stock soaring 20 percent that day. Shares of that company have retained the gain, adding another 3 percent over the last two days.

Microsoft is working with Goldman Sachs (Charts, Fortune 500), according to the Post.

Both Yahoo and Microsoft declined comment, said the reports.

Microsoft could have written a check for a $50 billion purchase in 2004 when it had 56.4 billion in cash and cash equivalents on its balance sheet. But that year it announced a special dividend that cost the company about $32 billion and paid $3 a share. Still, Microsoft's most recent quarterly report showed it with a very healthy $28 billion of cash and cash equivalents on its balance sheet.