Microsoft is sweetening its bid for Yahoo! -- um, why?

So, Mr. Softy CEO Steve Ballmer couldn't take the heat anymore. For all his talk about walking away and hostile bidding, he decides to try and make nice with the Yahoo! (NASDAQ: YHOO) board by apparently raising his offer. This man must feel that Microsoft (NASDAQ: MSFT) desperately needs the internet portal (it doesn't). While Yahoo! is definitely a prime force on the 'net, I have to say that, in my opinion, Ballmer should've just stuck to his tough guns and left Yahoo! at the table. But, according to this AP item, The New York Times has indicated that the original $31 per share offer has possibly been increased by "several dollars," this according to that old standby "unnamed sources." The article even indicates that $35 is potentially feasible.

I've got to believe that most Microsoft shareholders will feel aggravated by this. The goofy dance that has been going on between Ballmer and Yahoo!'s CEO Jerry Yang has been, to say the least, trying. I mean, who wants to see Microsoft spend all that money on a company that may or may not properly synergize with Mr. Softy's core competencies. Isn't focusing on the cash-cow operating-system monopoly of more importance? Isn't the Office franchise worth increased attention? What about the success of the Xbox 360 -- why would Ballmer want to now get sidelined integrating the Yahoo! brand when the Xbox brand is starting to show mega long-term promise? These are the things that went through my mind when I first heard of the Microsoft bid. I mean, seriously, I can't believe $50 billion is now conceivably on the table as a bid for the portal. Sure, Yahoo! is valuable, but probably to another, more suitable company; as an example, I didn't think a combo between Time Warner's (NYSE: TWX) AOL and Yahoo! was that off the wall.

The way I see it, Microsoft is an innovative software company that should concentrate on increasing its free cash flow to grow dividends over time and to make selective, smaller acquisitions that don't require leaps of faith when it comes to integration. I thought Ballmer believed what he said when he stated that Microsoft doesn't need Yahoo! But, I guess Google (NASDAQ: GOOG) is getting under his skin, and his ego would have been too bruised if he failed in his quest to win over the Yahoo! board. Whatever; I still like Microsoft stock on a long-term basis, but I really would have liked it if the most famous software giant in the world didn't take on the risk of owning Yahoo!

Disclosure: I don't own shares in any of the companies mentioned here; positions can change at any time.