Yahoo shares fell roughly 5 percent in after-hours trading, as rumors swirled Microsoft was considering lowering its buyout bid for the Internet search pioneer.

Shares of Yahoo dropped to $27.01, or 4.76 percent, in after-hours trading, after Reuters, citing a source, reported Microsoft was considering re-evaluating its bid. The report noted that the possible re-evaluation stemmed from a concern that Yahoo's value may have declined since the initial offer was made February 1.

For Microsoft, the threat of lowering its bid may be as effective a weapon as waging a proxy fight or an exchange offer. In part, it would allow the software giant to appear to take the high road in its battle to bring Yahoo to the negotiating table, without possibly alienating Yahoo's employees, which the software giant hopes to retain in a merger.

Previously, sources familiar with the deal said Microsoft wanted to do a friendly merger and retain Yahoo employees.

Thanks: Rab