Feb. 19 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, will approve a proxy fight in its bid to buy Yahoo! Inc. this week, according to the New York Times.

Microsoft, whose $44.6 billion bid was rejected by Yahoo's board, is prepared to spend up to $30 million on the battle, the newspaper said on its Web site today, citing people briefed on the matter. Microsoft Chairman Bill Gates said the current offer is ``very fair,'' Reuters reported today, citing an interview.

The software maker may avoid raising its price because Yahoo investors don't see its rival suitors as attractive alternatives. Yahoo is in talks with News Corp., a person familiar with the discussions said last week. London's Sunday Telegraph said Time Warner Inc.'s AOL is in talks with Yahoo. A partnership won't help Yahoo regain the lead in search from Google Inc., said Canaccord Adams analyst Colin Gillis.

``All this talk about Yahoo combining with AOL or News Corp. is just noise,'' said New York-based Gillis, who advises investors buy Yahoo shares. ``You're not curing any weaknesses. Shareholders would have a hard time loving a combination like that.''

Microsoft said on Feb. 11 it reserves the right to pursue ``all necessary steps'' to win over Yahoo shareholders. A person familiar with the matter said this month Microsoft may seek to oust Yahoo directors. Microsoft spokesman Frank Shaw declined to comment on the Times report today.

All 10 of Yahoo's directors are up for re-election at the next annual meeting. The last meeting was in June. Microsoft has until March 14 to nominate its own board members.

Yahoo Investors

Microsoft would more than double its share of Internet searches in buying Yahoo, and save as much as $1 billion a year by reducing overlap in their operations. Yahoo Chief Executive Officer Jerry Yang has resisted Microsoft's advances, pursuing another partner to keep his company independent.

Yahoo investors including Munder Capital Management's Ken Smith, Jacob Asset Management's Ryan Jacob, Legg Mason Inc.'s Bill Miller and T. Rowe Price's Larry Puglia have said in the past two weeks they would back a bid if Microsoft increased the price.

The Sunday Telegraph didn't cite anyone in its Feb. 17 report. Time Warner spokesman Keith Cocozza declined to comment. Tracy Schmaler, a spokeswoman for Sunnyvale, California-based Yahoo, didn't return a call yesterday, a holiday in the U.S.

Teaming with AOL wouldn't give Yahoo investors the savings they would get with Redmond, Washington-based Microsoft, said Atlantic Equities LLP analyst Hamilton Faber.

This month, Time Warner CEO Jeffrey Bewkes said he will split AOL's shrinking dial-up Internet service from the rest of the unit to focus on the online advertising division. Time Warner probably is examining whether to combine the ad division with Yahoo, Faber said.

`Not The Best'

``Time Warner may have the desire, but as far as Yahoo shareholders are concerned, it is not the best option,'' said London-based Faber, who advises investors to buy Yahoo shares. ``The synergies from combining AOL and Yahoo wouldn't be anywhere near as large as combining Microsoft and Yahoo.''

AOL had 4.6 percent of the U.S. Web search market, behind Microsoft's 9.8 percent and Yahoo's 22.9 percent, according to December data from Reston, Virginia-based researcher ComScore Inc. Google dominates the market with 58.4 percent share.

Yahoo fell 65 cents, or 2.2 percent, to $29.01 on the Nasdaq Stock Market at 4 p.m. in New York, 12 cents more than the current $28.89 value of Microsoft's cash and stock offer. Microsoft dropped 14 cents to $28.17. Time Warner, the world's largest media company, fell 6 cents to $16.64.

Board Fight

Rupert Murdoch's News Corp., based in New York, also has discussed a transaction with Yahoo, a person with knowledge of the talks said last week. For News Corp. and its MySpace social- networking site, Yahoo would provide little savings because it has no similar business of its own, Faber said.

Both AOL and News Corp.'s MySpace have partnerships with Google, which also probably would raise concerns with antitrust regulators in the U.S., according to Faber. A combination with Microsoft probably wouldn't because Google would still dominate the search market, he said.

Yahoo directors led by Chairman Roy Bostock and billionaire Ron Burkle are pushing for a greater say in the company's future, the New York Post said Feb. 15, citing an unidentified person close to the situation. They are concerned that Yang, who co-founded Yahoo more than a decade ago, may reject an offer for emotional reasons instead of financial ones, the Post said.

Higher Price?

Microsoft, which made its bid on Feb. 1, is the best match for Yahoo because the combination would find savings in research and development as well as computer and network infrastructure, Faber said. The companies have competing Web businesses including search.

Yahoo's search for other bidders may be part of a plan to get Microsoft to raise its price, analysts including Stanford Group Co.'s Clayton Moran said. Microsoft may increase its bid by $2 to $4 a share, Faber said. That would value the offer at as much as $50 billion.

``In the end, they are going to have bow to their fiduciary responsibility and accept an offer, which will probably be a few dollars more than the current one,'' he said. ``That would be a kind of face-saving figure for Yahoo management to accept.''

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: February 19, 2008 16:31 EST