AP sources give inside look at Microsoft's raised Yahoo bid

To help steer them, Microsoft and Yahoo had hired a high-priced team of investment bankers and lawyers. Microsoft's team included Bear Stearns Cos., Blackstone Group LP and Morgan Stanley, while Yahoo's group was led by Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.

The advice didn't come cheaply. Yahoo, for instance, said it had already spent $14 million through March on help hired to grapple with the Microsoft bid.

One person familiar with the deal said Yang told Ballmer at the April 30 meeting that he thought Yahoo was worth $38 per share. Another person denied Yang threw out a specific figure at that meeting.

But these two people agreed Ballmer told Yang he thought he could come up with "a couple more dollars." Microsoft's board also met April 30 to consider raising the bid.

Ballmer contacted Yang May 1 to let him know he was "formally offering a couple dollars more," one person said.

On May 2, Smith called Ronald Olson, an outside lawyer for Yahoo, to make it clear Microsoft would pay $33 per share and the offer could be presented to Yahoo's board.

The next day, Yang and fellow Yahoo founder David Filo flew on a private jet to meet with Ballmer and Kevin Johnson, Microsoft's head of online operations, at a Seattle airport.

Ballmer reiterated Microsoft's new offer of $33 per share, a 12 percent increase from the value of the original bid, which had fallen to $29.40 per share because half the purchase was to have been financed with Microsoft's declining stock. The shares had dropped 10 percent since the original bid was made.

Yang and Filo said they personally believed Yahoo was worth $38 per share but could go along with the board's desire for $37 per share.

Filo's presence at this pivotal meeting has puzzled some investors and analysts because he isn't on the company's board. Filo is a major shareholder, though, with a 5.8 percent stake in the company, exceeding Yang's 3.9 percent stake.