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Microsoft shareholders drive down value of Yahoo bid

Thanks to a decline in Microsoft shares, the stock portion of the company's offer has dropped. That means that as of now Microsoft is offering less than it was four days ago. To match its original $31 per share offer, Microsoft would have to boost the exc

A decline in Microsoft's stock in the days since its Yahoo bid was announced could make doing the deal more expensive, Wall Street analyst-turned blogger Henry Blodget noted Wednesday.

When Microsoft announced the bid on Friday, it offered $31 a share in cash or stock. Specifically, it offered Yahoo shareholders 0.9509 Microsoft shares for each Yahoo share they own.

Right now, both the exchange ratio and the cash price are fixed, meaning Microsoft is offering $31 in cash or roughly $27 in stock. Obviously, all the shareholders would want cash, but Microsoft has already specified that the deal is half cash and half stock.

All this is elementary at this point, since Yahoo hasn't yet come to the bargaining table. What is noteworthy, though, is that as of right now, Microsoft's offer has dropped. To offer $31 a share in stock, Microsoft would have to boost the exchange ratio, a move that would mean more dilution for existing Microsoft shareholders.

Plus, many believe that Microsoft may have to hike its bid higher than $31 a share to seal the deal, a prospect that gets even pricier if Microsoft shares don't rebound.

Microsoft declined to comment on the impact of its share drop on the cost of the deal.

It's not uncommon for investors to send shares of an acquiring company lower on word of a deal, but that doesn't make the financial realities any less real.