• Info World, Wednesday, March 26, 2008 11 AM

Citigroup Investment Research analyst Mark Mahaney on Tuesday raised his price target for Yahoo's stock from $34 to $31, citing the likelihood that Microsoft would increase its bid for the company to $34 per share. Microsoft launched a $44 billion bid to acquire the flagging Web giant nearly two months ago, which was later rejected by Yahoo's board of directors.

"We think the strategic value of Yahoo to Microsoft is very significant," Mahaney said in a research note, adding that Microsoft was unlikely to walk away from the deal because it had yet to make money from its online advertising operations, despite heavy investment in the sector over the last three to four years. Mahaney said the limited combined market share of the two companies would also help the deal pass regulatory scrutiny.

Yahoo, meanwhile, continues to pursue all possible ways to avoid a Microsoft takeover, including a possible partnership with Time Warner's AOL, but Mahaney believes the exploration of such a deal would only "serve as a forcing function to a higher Microsoft bid."

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