Mumbai: Three months after making its first bid for the Internet giant Yahoo!, Microsoft finally seems to be getting underway with merger talks, even if it is yet to make any headway in its unsolicited bid.

Sources say that Microsoft, which was threatening to abandon its offer, or attempt to oust Yahoo!'s board, has now offered more cash, rumoured to be around $33 a share, valuing the company at around $50 billion, if Yahoo! were to come back to the discussion table, against the previous valuation of $44.6 billion, at $31 per share, reports citing sources close to the  developments said.

However, despite the anticipation, sceptics still consider the deal out at sea, with the ship showing no signs of coming in anytime soon.

If it were to come through, the Microsoft – Yahoo! Deal has the potential to reshape the landscape of competition on the internet, including the creation of some credible competition to Google's dominance of online advertising and search marketing. The higher bid is widely seen as a deal sweetener, and though details of the discussions are yet unknown, the New York Times reported that sources close to the action said Microsoft ''suggested it was willing to pay more than $33 a share.'' Yahoo!, according to reports, is sticking to its guns for at least $37 a share.

Microsoft had imposed a deadline of 26 April on Yahoo! for it to come about for a negotiated merger. However, that deadline is now a week past, and there is still no official news from Microsoft on how it plans to take the game forward. The basic bone of contention is a disagreement on what constitutes a ''fair value'' for Yahoo! Microsoft's first offer on 31 January this year was a stock-and-cash offer, which was valued at $44.6 billion, at $31 a share.

Since then, there has been a decline in Microsoft's share price, and that offer was worth $29.40 a share on Friday, 2 May. Yahoo!'s repetitive defence has been that Microsoft's offer ''undervalued the company'', though co-founder and chief executive Jerry Yang is reported to be open to a deal with at a better price.

Microsoft had offered to buy Yahoo for about $40 per share during confidential talks held in early 2007, but Yahoo has since lost both market share and market value denying the company the prospect of a better takeover valuation.

The sweetened price is seen as a move to bring Yahoo! back to the negotiating table while trying to woo the larger shareholders of Yahoo!. Microsoft would need these large shareholder's support if the unsolicited bid turns hostile, and it had to launch a proxy war to wrest control of the company from its current board. Reports indicate that some Yahoo! shareholders indicated that they would be willing to jump into Microsoft's camp at around $35 a share.

Presently, every $1 a share hike in the price offered by Microsoft adds around $1.4 billion to the acquisition value.

A buy-in, or friendly deal is pretty much needed by Microsoft, which is also why it is possibly raising its offer in trying to avert a hostile bid, because a long-drawn hostile takeover battle could witness the defection of many Yahoo employees, thereby eroding the company's value.

What is more worrisome for Microsoft, is that if it is unable to win the deal, it would see Yahoo! possibly going in for a follow through deal with Google, since the two internet companies are already collaborating on a possible partnership in online search advertising. (See: Yahoo to test Google AdSense; in alliance talks with AOL)

Yahoo has been busy courting rivals Google and Time Warner's AOL to ward off the Microsoft threat even as company executives have repeatedly said the company was not averse to a deal with Microsoft at a higher price.

Microsoft chairman Bill Gates and Yahoo president Susan Decker are both expected to meet in Omaha, this weekend to attend the annual meeting of Warren Buffett's Berkshire Hathaway Inc. Both Gates and Decker are on the board of the company.

Microsoft`s board is believed to have met earlier this week to consider raising the bid as high as $33 per share, or about $47.5 billion.