Yahoo investor urges higher bid

Analysts say it is unlikely any other firms will challenge Microsoft's bid

Yahoo's second-biggest shareholder has said Microsoft will have to raise its offer if it wants to buy the web firm.

Last week Microsoft offered more than $40bn (£20.5bn) for Yahoo, or about $31 per share in cash and stock.

In a letter to investors Bill Miller, an asset manager at Legg Mason, which owns 6% of Yahoo's shares, said a fair price is nearer $40 per share.

However, he warned that Yahoo will struggle to find more attractive alternatives than Microsoft's advances.

Microsoft wants to merge with Yahoo to increase its online presence and enable it to better compete with industry leader Google.

Rejection 'unfortunate'

On Monday Yahoo rejected Microsoft's bid, saying it was too low.

Microsoft's offer was worth $31 a share, 62% above the level at which Yahoo stocks were trading when the offer was made on 1 February.

Microsoft said that Yahoo's rejection of its initial offer was "unfortunate," but that it still had belief in the merits of its proposal which it felt was "full and fair".

As it rejected the Microsoft offer, Yahoo said that the deal undervalued its brand, audience, investments in advertising platforms and future growth prospects, free cash flow and earnings potential.

A $40 a share offer would be more than double the $19.18 closing price of Yahoo's shares the day before the original offer was announced.

Yahoo's shares have not traded above $40 for two years.