By Peter Lauria and Nadia Damouni
NEW YORK (Reuters) - Microsoft Corp is considering a bid for Yahoo Inc, resurfacing as a potential buyer after a bitter and unsuccessful fight to take over the Internet company in 2008, sources close to the situation said on Wednesday.
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Microsoft joins a host of other companies looking at Yahoo, which has a market value of about $20 billion and is readying financial pitch books for potential buyers, they said.
Those companies include buyout shops Providence Equity Partners, Hellman & Friedman and Silver Lake Partners, as well as Chinese e-commerce giant Alibaba and Russian technology investment firm DST Global, the sources said.
Yahoo shares jumped 10.1 percent on the news to close at $15.92 on Nasdaq, but fell back to $15.34 in after-hours trading. Microsoft shares ended 2.2 percent higher at $25.89.
Microsoft may seek a partner to go after Yahoo, one of the sources said, without identifying any parties.
No decision has been made and a bid may not materialize as there are internal divisions at the software company on whether it should pursue Yahoo again, a high-ranking Microsoft executive said.
One camp inside Microsoft is hot for the deal, believing that it would obliterate AOL Inc as a competitor and create a strong Web portal that can offer better products to audiences, advertisers and end users, the executive said.
However, another camp is against the deal, feeling that if Microsoft is going to invest billions of dollars in an acquisition it should be one that has more growth potential. Microsoft last tried buying Yahoo in 2008, offering to pay as much as $47.5 billion, or $33 per share.
"Yahoo's value hasn't grown in years, and some executives feel we should buy something that is more forward-looking," said the executive, who spoke on condition of anonymity.
Yahoo, Microsoft and the other potential buyers declined to comment.
Any auction process for Yahoo is still in the early stages, and the company's financial advisers -- Goldman Sachs and Allen & Co -- are preparing to send financial information to potential bidders, sources have said previously.
Shortly after ousting Carol Bartz as CEO in early September, Yahoo said it was exploring strategic alternatives after receiving "inbound interest" from a number of parties.
The once-dominant Internet pioneer is pursuing parallel tracks, sounding out deal options as well as engaging in a search for a new CEO.
Yahoo would be a big bite for any single private equity firm, especially at a time when financing markets for leveraged buyouts have dried up.
Industry sources said private equity firms could take over the U.S. operations and sell Yahoo's Asian assets to a buyer such as Alibaba.
"There are many reasons why this thing probably makes sense," said Sid Parakh, analyst at fund firm McAdams Wright Ragen. "If you strip out the variety of assets Yahoo owns, you are pretty much paying nothing for the core business."
One Wall Street analyst recently valued Yahoo at just over $20 billion, with its core search and display advertising business worth $7.7 billion, its Asian assets worth $9.2 billion, plus $3.2 billion in cash.
Yahoo owns about 40 percent of Alibaba as well as about 35 percent of Yahoo Japan.
If Microsoft fully combined its Bing Internet search business with Yahoo's, it would give it more than 30 percent of the U.S. search market and make it a credible competitor to Google, said Parakh.
Under a 10-year deal struck in 2009, Microsoft's Bing already powers Yahoo search, but it cedes 88 percent of resulting advertising revenue back to Yahoo.
Microsoft, with a cash pile of $53 billion, could certainly afford a deal, but some doubted the world's largest software company would actually pursue it, given its previously failed bid and the existing Yahoo agreement.
"I think it's unlikely because they (Microsoft) have been down this path before," said Ben Schachter, an analyst with Macquarie Research.
"In a lot of ways they've gotten what they want out of it already, with the (Yahoo) search deal. I could make a case for a lot of synergies. But it's certainly not a strategic priority in any way."
Silicon Valley sources said Jack Ma, the founder and CEO of Chinese e-commerce giant Alibaba -- who last month expressed interest in buying Yahoo -- could team up with private equity to make a deal.
Or it may make more sense for Ma to team up with Microsoft, said Susquehanna Financial Group analyst Herman Leung.
"If Microsoft gets involved, then you don't need private equity," said Leung. "The problem for Jack Ma is capital. Microsoft has $53 billion in cash. Why have to deal with bondholders and all this stuff when Microsoft can make that all happen for you?"
Some also have expressed concerns about cultural fit and Microsoft's ability to manage such a large deal.
Microsoft CEO Steve Ballmer has had an antagonistic relationship with Yahoo, and the company has never successfully integrated a large acquisition.
Microsoft's 2007 deal to buy online ad firm aQuantive for $6 billion was a flat-out failure. Its $8.5 billion deal to buy Internet phone service Skype has not yet been completed, so integration efforts have not yet begun.
Microsoft is making slow progress in combating Google's dominance in search advertising. According to the latest figures from research firm comScore, Google has 64.8 percent of the U.S. search market, Yahoo has 16.3 pct and Microsoft 14.7 percent.
But even with traffic from Yahoo, Microsoft still has not attracted enough advertising dollars and profitability in search is a long way off.
Last quarter, Microsoft's online services unit -- which includes Bing and the MSN web portal -- lost $728 million. It has lost almost $6.5 billion over last three fiscal years.
(Reporting by Nadia Damouni and Peter Lauria in New York; Additional reporting by Soyoung Kim, Paritosh Bansal, Alexei Oreskovic and Bill Rigby; Editing by Tiffany Wu and Richard Chang)