Now Microsoft must decide whether to pursue a hostile takeover via a proxy fight or to drop the bid and seek other acquisition alternatives.
All along, Microsoft's management had strongly indicated that it would pursue Yahoo via all available options, including the hostile route of ousting the current board by proposing its own slate of director candidates at the next Yahoo shareholders' meeting.
On Sunday, Yahoo declined to comment. Microsoft responded by pointing to comments Liddell made on Thursday during Microsoft's earnings announcement.
"Unless we make progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives. We will provide updates as appropriate next week ... these alternatives clearly including taking an offer to the Yahoo shareholders, or to withdraw our proposal and focus on other opportunities, both organic and inorganic," Liddell said then.
Citing anonymous sources, The Wall Street Journal reported Sunday that Microsoft, Yahoo and their advisers have held talks in recent weeks but didn't achieve enough progress to hammer out a deal by Saturday.
The process has clearly been frustrating for Microsoft executives, who have maintained that their offer is fair and that they don't see a reason to revise it. Ballmer and his team have shown signs of getting impatient with the slow progress, which is not surprising considering Microsoft's urgent desire to boost its underperforming Internet business and to better compete against Google Inc.
Launching a proxy fight would prolong the acquisition process even further and make the fight even nastier. Even if Microsoft were to win, it would not be a good start to what would be an arduous and lengthy postacquisition integration process.
In the meantime, Google would no doubt seek to capitalize on the internal turmoil within Microsoft and Yahoo by trying to poach clients and valuable employees.
As soon as Microsoft announced its bid for Yahoo on Feb. 1 -- valued at $44.6 billion at the time -- Yahoo's management began seeking and considering alternatives, while its stock began to rise from the latest prebid price of $19.18.
By the time Yahoo's board formally rejected the unsolicited offer on Feb. 11, saying it undervalued the company, Yahoo's stock price had risen to $29.87, erasing the offer's premium. The next day, Microsoft hinted in a letter to Yahoo that it wouldn't shy away from attempting a hostile takeover.
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