Update 10 a.m. PDT: Morning trading update and analyst report from Collins Stewart.
Shares of Yahoo received a boost in morning trading, following Microsoft's announcement over the weekend that the.
Yahoo climbed as high as $28.33 a share in early morning trading, before settling back a bit to $27.93 per share, up nearly 1 percent, as the morning progressed. Yahoo, on Friday, closed at $27.66 a share.
On Sunday, Microsoft announced a proposal that calls for a transaction, but would not involve the acquisition of all of Yahoo's assets. That said, Microsoft further noted that it "reserves the right to reconsider" tossing in a new bid, depending on how discussions go with the Yahoo, Yahoo shareholders, and third parties, and within its own company ranks.
UBS analysts Benjamin Schachter and Heather Bellini issued a research note Monday, noting that this latest twist may serve as a stepping stone for a friendly deal.
"We believe that a core issue for Microsoft is to acquire Yahoo on friendly terms. A near-term deal could act as an intermediate step that would go a long way toward testing the waters," the analysts stated in their research note.
Collins Stewart analyst Sandeep Aggarwal considers a Microsoft-Yahoo combination imminent, valuing Yahoo's search business at $21 billion, its display advertising at $14 billion, and its international investments at $9.25 billion.
"We believe that Microsoft has at least three options to structure Yahoo deal. One, buy Yahoo's selective assets and pay nice valuation multiple for those assets. Two, buy entire Yahoo at mutually agreeable price and then spin off certain assets based on a predefined plan. Three, partnership in search," Aggarwal said in a research note.
He noted it may make more sense for Microsoft to take a slice-and-dice approach in a transaction with Yahoo that falls short of a full-blown acquisition of the entire company.
"Microsoft's new move helps Microsoft to keep the price within its comfort zone, avoid any possible push back at Alibaba (in which Yahoo is a major owner), and let Yahoo realize perhaps higher value for those assets that Microsoft was less interested in but still work with Microsoft," Aggarwal said in his report.
Shares of Microsoft were down 1.33 percent to $29.59 in morning trading, while the broader markets were up across the board.