Just Get It Over With Already …

Microsoft (MSFT) may have no choice but to raise its “generous” $31-per-share hostile bid for Yahoo (YHOO) if it hopes to acquire the company without a messy proxy fight. This according to Citigroup (C) analyst Mark Mahaney, who in a research note to clients today said Microsoft is unlikely to walk away from the deal. “We believe that a YHOO sale to MSFT–at a price likely higher than the initial $31 bid–is the most likely outcome,” Mahaney wrote, suggesting $34 per share as an agreeable price for a company of such strategic value to Microsoft.

After all, the software giant does need Yahoo to compete with Google (GOOG) effectively in the online advertising market–especially now that the search giant has acquired DoubleClick. “Google’s share of U.S. online advertising has significantly increased and the DoubleClick acquisition could materially ramp its display ad biz,” Mahaney said, adding that only by acquiring Yahoo can Microsoft potentially address the scale/liquidity challenge of its ad platform.