Feb. 8 (Bloomberg) -- Yahoo! Inc. investors boosted bets that the world's second most popular Internet search engine will fetch more than what Microsoft Corp. is offering.

Yahoo shares rose above the value of Redmond, Washington- based Microsoft's cash-and-stock offer yesterday for the first time since the Feb. 1 bid, showing that shareholders expect a higher price.

``If you're in it now, you've got to believe that Microsoft bumps or that another buyer shows up,'' said John Orrico of New York-based Water Island Capital LLC, an investor in takeover targets. His firm, which bought Yahoo shares on Feb. 1, manages about $180 million in assets. ``The market's expecting about a 10 percent bump.''

Microsoft is pursuing Yahoo to take on Google Inc., the world's most popular Internet search engine. It bid $44.6 billion, or $31 a share, for the company. Microsoft plans to let investors choose cash or stock, at a ratio that will end up being about 50-50.

Microsoft shares have declined since then, lowering the value of the stock portion yesterday to about $26.74 a share and the total value of the deal to $28.87, or about $42 billion.

Range of Options

Microsoft, the world's biggest software maker, has dropped 12 percent since Feb. 1 on the Nasdaq Stock Market. The stock rose 44 cents to $28.56 today, pushing the value of the deal to about $29.08 a share. Yahoo advanced 16 cents to $29.20.

Yahoo, based in Sunnyvale, California, is exploring a ``wide range'' of options in weighing the Microsoft bid, Chief Executive Officer Jerry Yang said in an e-mail to staff this week.

Google's dominance in Internet searches is ``a very tough position to try to overtake,'' Carlyle Group managing director Norman Pearlstine said today in an interview with Bloomberg Television in New York. Yahoo's Internet search engine is less valuable than its network of so-called display advertising, such as banner ads, he said.

``You can become more marginally competitive with it,'' Pearlstine said, referring to Internet search. ``But I think it's really in the ad sales area, particularly display, where you could imagine Microsoft and Yahoo seeing a brighter future together.''

Yahoo's board is carefully evaluating the proposal, spokeswoman Tracy Schmaler said in an e-mail. Microsoft's Bill Cox didn't return phone messages seeking comment.

Board Meeting

Yahoo's board met today, the technology blog TechCrunch reported, citing unnamed sources.

``Ultimately, I don't think they can get this asset for $31,'' Heather Bellini, a UBS AG analyst in New York, said in an interview. Even if no more bidders emerge, Microsoft may have to bid $34 to $37, said Bellini, ranked as the top software analyst by Institutional Investor magazine.

Since the bid is half cash and half stock, Microsoft may fix the offer at $31 before pursuing an increase, so the value doesn't decline with its shares, she said. Bellini recommends buying Microsoft stock.

Twenty-one of the analysts tracked by Bloomberg recommend buying Microsoft shares. Seven say hold, and one recommends selling.

Until Yahoo's board responds, Microsoft shouldn't raise its bid, Sanford C. Bernstein & Co.'s Charles Di Bona said. A price increase may depress Microsoft shares further, lowering the stock value of the deal again, said the New York-based analyst, who rates Microsoft ``outperform.''

``Why negotiate against yourself?'' Di Bona said. ``If they have to raise the price, the stock could go down further and then you're going around in a circle.''

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: February 8, 2008 19:11 EST