Feb. 4 (Bloomberg) -- Jerry Yang, who pledged last year to lead his team of ``Yahoos'' to victory, may find investors would rather team up with Microsoft Corp.

Yahoo! Inc. rose the most since its first day of trading when Microsoft offered $44.6 billion for the company, the second-most popular search engine, on Feb. 1. Yang, who returned as Yahoo's chief executive officer to try to reverse a two-year stock slump, had presided over a 32 percent drop before the bid.

Microsoft said Yahoo executives snubbed its overtures last year in favor of tackling Internet search leader Google Inc. independently. Yahoo's stock performance shows investors don't embrace that strategy and that Yang's promises to revamp the company's search engine and gain on Google were in vain.

``It's hard to look shareholders in the eye and say it doesn't make sense,'' Robert Doll, chief investment officer of global equities at BlackRock Inc. in Princeton, New Jersey, said of Microsoft's unsolicited offer. ``There won't be a whole lot of options for Yahoo.'' He oversees $1.3 trillion in assets, including stock in Microsoft, the world's biggest software maker.

Microsoft's $31-a-share bid came three days after Sunnyvale, California-based Yahoo posted an eighth straight quarter of declining profit and projected sales that trailed most analysts' estimates.

Shares Gain

Yahoo was trading at $19.18 before the offer. The shares rose 48 percent in Nasdaq Stock Market trading on Feb. 1 and advanced 95 cents to $29.33 at 4 p.m. New York time today. Microsoft fell 26 cents to $30.19, while Google dropped $20.47 to $495.43.

Google Chief Executive Officer Eric Schmidt called Yang to suggest a potential partnership between the two companies to thwart Microsoft's bid, the New York Times and the Wall Street Journal reported today, citing people familiar with the matter.

``Yahoo has a lot of options, and you can look at what analysts have said about those options,'' spokeswoman Diana Wong said when asked about the Journal's report. Yahoo said in a statement on Feb. 1 that it will review the offer ``promptly.''

Yang, 39, agreed to take over at Yahoo in June, replacing Terry Semel, after its share of Web searches tumbled and the company lost out on sales of graphics-based ads mainly to social-networking sites like News Corp.'s MySpace and Facebook Inc.

In Semel's six years at the helm, he built Yahoo's online ad business through acquisitions and internal development. While the shares jumped almost sevenfold under his watch, Google's rising dominance led the stock to plunge 35 percent in 2006, and investors began calling for Semel to resign.

Yahoos Rally

``I'm ready to rally our near-12,000 Yahoos around the world,'' Yang said on a conference call when he took over. He planned to foster ``a winning culture, while strengthening our leadership team to galvanize Yahoos around our goals.''

Microsoft's bid came too soon for Yang to prove himself, said Ellen Siminoff, who worked with him at Yahoo for seven years and now leads Mountain View, California-based Efficient Frontier, which helps companies advertise on search engines.

``It's hard to get any sort of change that quickly,'' Siminoff said. ``He would rather sell having fixed the company than sell after a perception of weakness.''

Microsoft chose Yahoo as a partner after repeatedly coming in a distant third in Internet searches and failing to bolster advertising revenue on its own. Yahoo would give Redmond, Washington-based Microsoft the most popular group of Web sites in the U.S., which reach about 500 million people worldwide.

Reviewing the Deal

The U.S. Justice Department is ``interested'' in reviewing the antitrust implications of the deal, agency spokeswoman Gina Talamona said last week. Neelie Kroes, commissioner of competition for the European Commission, said her agency also would scrutinize a Microsoft-Yahoo deal.

The offer ``raises troubling questions'' for Web users, Google said yesterday, questioning whether Microsoft would seek to exert ``inappropriate'' influence over the Internet. Microsoft General Counsel Brad Smith disputed the claims in a statement.

Microsoft and Yahoo explored ways to work together in late 2006 and early 2007, according to a letter by Microsoft CEO Steve Ballmer to the Yahoo board dated Jan. 31. Yahoo rejected the idea of being taken over by Microsoft a year ago, according to Ballmer, 51.

``I doubt that Jerry and David want to sell Yahoo,'' said Mark Cuban, the billionaire owner of basketball's Dallas Mavericks, who sold Broadcast.com to Yahoo in 1999. ``But this is a very smart move for Microsoft. There will surely be a ton of duplication on the technology side, which should cut costs significantly.''

Next Step

The offer from Microsoft is one of many options Yahoo is evaluating, Yang and Chairman Roy Bostock said in a Feb. 1 e- mail to employees obtained by Bloomberg News. The board will respond after reviewing the alternatives, they said. If Yahoo accepts the deal, Yang stands to get about $1.6 billion in cash or Microsoft stock for his 52.8 million shares.

Microsoft may seek to oust Yahoo board members should they reject its offer, said a person familiar with the matter, who asked not to be identified. Under Yahoo's bylaws, stockholders must nominate directors by March 13, ahead of the company's annual meeting, the person said. Microsoft spokesman Frank Shaw declined to comment. Wong didn't immediately return a voicemail message.

Yahoo's advisers, Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., are approaching other potential bidders in search of a higher offer, the New York Times reported Feb. 2.

Price Increase?

Microsoft may have to raise its price to win over Yahoo's board, said Jason Helfstein, an Oppenheimer & Co. analyst in New York. Helfstein suggested in a Feb. 1 report that an increase to as much as $40 a share, or about $53.5 billion, was possible. Microsoft spokesman Bill Cox declined to comment.

Yang and co-founder David Filo, both then graduate students, started the company in 1995 with $2 million from venture capital firm Sequoia Capital in Menlo Park, California. Word of ``Jerry and David's Guide to the World Wide Web'' had spread beyond their trailer at Stanford University, helping the site get up to a million hits a day within months of its debut, according to Yahoo's corporate Web site.

Yahoo's sales increased from $20 million in 1996 to more than $1 billion four years later. As traffic on the Web soared, so did advertising revenue, helping Yahoo's stock market value jump to more than $100 billion, most of which was lost in the technology-stock crash of 2000.

To bolster the search business, Yahoo bought Overture Services Inc. and Inktomi Corp. in 2003, adding a service for online queries as well as software for selling links next to search results. Yahoo previously used Google's search engine.

Google's Lead

By the time the acquisitions were finished, Mountain View- based Google had already built its lead in search. Google's sales surpassed Yahoo's in the first quarter of 2005 as businesses bought more text links, ads that appear next to query results.

Yang's latest efforts, which include bolstering the search engine to include links to photos, videos and music, failed to stem the slide. Google's share of the U.S. search market rose to 56 percent in December from 53 percent in June, while Yahoo's share dropped to 18 percent from 20 percent, according to New York-based Nielsen Online.

The stock price tumbled along with it. As of Jan. 31, Yahoo's stock had dropped 32 percent since Yang took over, compared with a 9.5 percent gain for Google and a 10 percent drop for the Standard & Poor's 500 Index.

Former employees such as Siminoff and Brian Steel, who joined Yahoo in 2003 with the acquisition of Overture, say Yang probably will take Microsoft's offer because the price is too good to ignore.

``At the end of the day, he's got a fiduciary responsibility to a whole bunch of folks,'' said Steel, who left in 2006 and later became chief of VoloMedia Inc. in Mountain View. ``He ended up with a big challenge, and it wasn't something that was going to turn around overnight.''

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

Last Updated: February 4, 2008 16:22 EST