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01 Feb, 2008

Published: 14:22 Friday 01 February 2008
By: Matthew Goodburn, Investment Correspondent

>(Update)The Dow Jones Industrial Average was up 110 points or 0.9% after half an hour of trading on Friday afternoon, boosted by Microsoft's hostile cash and share offer for Yahoo.

Microsoft has offered $31 per share equating to a 62% premium to Yahoo's closing share price on Thursday.

In pre-market trading Yahoo's shares were up by almost 60% while Microsoft shares fell 2.6% with analysts predicting it would lead to an early surge in trading when Wall Street opened.

US Futures had been predicting the Dow Jones Industrial Average was likely to leap 124 points when the markets opened.

Microsoft is widely supported by UK managers with Smith & Williamson's A-rated Lady Tana Focke, M&G North American manager AA-rated Aled Smith and A-rated Investec American manager William Fries all having Microsoft as core holdings.

But it looks as if Yahoo shareholders will be rewarded in the short term. Yahoo is a holding for a number of key managers including Bill Miller and Mary Chris Gay who manage the Legg Mason US Equity fund.

New Star Technology (New Star Technology Inc) manager Hitesh Thakrar said the bid was 'great news' for Yahoo shareholders.

Thakrar owns Yahoo's rival Google, which has an equal 15% share of the search engine market with Yahoo as well as top 10 holding Microsoft which already has a 60% share of the market.

He said: 'The biggest winner will be Yahoo shareholders because over the last 12 months its performance has been shocking. Until two hours ago it has been right to be underweight in the stock before this bid came in from leftfield.'

He added: 'Yahoo's founders only own around 8% of the equity so the rest is in free float.'

Thakrar said the market was pricing in a higher bid from Microsoft and said he would be looking to add to his position in Google which would benefit from the bid activity because it was so closely bound up with the fortunes of its two rivals in the fiercely competitive search engine market.

He added: 'It is great news for Google shareholders too and it means Microsoft will stay in the game long term because this bid will take a while to complete.'

Thakrar said he expected the bid to ultimately be successful.

'It is the first time Microsoft has launched a hostile bid and it is likely they will come back with a higher offer. I would expect the bid to be straightforward.'

Martin Currie's AAA-rated Tom Walker said Microsoft's bid for Yahoo seemed to be at 'a nice premium' but anticipated a tough market ahead in the sector whatever the outcome.

He said he was currently 'looking at' Yahoo shares but had made no decision whether to buy in.

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