Yahoo! Is A Capital Idea

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Yahoo! Is A Capital Idea
Maurna Desmond, 04.10.08, 1:00 PM ET

While Yahoo! Chief Executive Jerry Yang flirts with Google and frustrates Microsoft, one significant investor has quietly doubled its stake in the pioneering Internet portal.

On Thursday, Capital World Investors increased its stake in Yahoo! (nasdaq: YHOO - news - people ) to 10.1% from 5.2% according to its filing with the Securities and Exchange Commission. The company now owns 135.5 million shares of the 1.3 billion Yahoo! shares outstanding.

Yahoo shares rose 2.5%, or 77 cents, to $28.45, during midday trading in New York.

News of the ownership shift follows another twist in the Micro-Hoo! drama with Yahoo! issuing a terse announcement Wednesday that it was launching a two-week "trial advertising" partnership with Google (nasdaq: GOOG - news - people ). The arrangement is a clever way of testing two separate ideas: the financial implications of letting Google's powerful ad-serving engine take over Yahoo!'s search ads, and just how politically explosive a deal between Yahoo! and Google might be. (See: " Yahoo! Gets In Bed With Google")

Although Yahoo! has staunchly asserted it is worth more than the $31 a share cash-and-stock offer made by Microsoft, the Redmond, Wash.-based company has been reluctant to sweeten the deal. Paying more than $40.0 billion for Yahoo! would already force Microsoft to borrow money. But Microsoft may try teaming up with News Corp. (nyse: NWS - news - people ), which could lighten that financial burden andadd the nice touch of a vibrant social-networking site, MySpace. (See "Menage a Yahoo!")

Capital World Investors is a division of Capital Group, which manages a total of $1.5 trillion and has other subsidiaries including the largest U.S. mutual-fund company, American Funds.

Microsoft (nasdaq: MSFT - news - people ) first proposed an offer of $31 per Yahoo! share on Feb. 1, part of a cash-and-shares bid initially valued at $44.6 billion.

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