Microsoft (MSFT) to spend big to keep Yahoo! (YHOO) staff

Two pension funds have filed suit against Yahoo! (NASDAQ: YHOO) for not getting to the bargaining table with Microsoft (NASDAQ: MSFT). Fair enough.

A look at the court papers reveals that Microsoft is considering as much as $1.5 billion in employee retention payments to keep key Yahoo! people around. According to Reuters, "The $1.5 billion figure was discussed in a communication between the general counsels of Microsoft and Yahoo."

The news indicates two things about the Microsoft bid. One is that Redmond thinks highly enough of Yahoo!'s core work-force group that it is prepared to keep it with incentives. Many workers at Yahoo! had assumed that Microsoft would gut the portal to save money.

The other revelation is that Microsoft's cost of buying Yahoo! is higher than the $44 billion that it has offered. Aside from the execution risk of the deal, adding $1.5 billion to the transaction price is a lot.

Microsoft is not likely to spend that money on Yahoo! staff and raise its bid at the same time.

Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Under $10 Letter.