Among the possibilities, Microsoft said it might go fully hostile, and attempt to oust the board, appealing to shareholders.  This follows remarks made by Microsoft Chief Executive Steve Ballmer on Thursday.  The other option says Microsoft, is to lower the offer or even withdraw it altogether which is a steep departure from previous comments that indicated that Microsoft would keep trying to acquire the company to the bitter end, no matter what the cost.

Commenting on the state of the offer was Chief Financial Officer Chris Liddell, who offered insight to Microsoft's plans on a conference call Thursday.  Said Liddell, "Speed is of the essence for the deal to make sense.  Unfortunately, the transaction has been anything but speedy and has been characterized by what would appear to be unrealistic expectations of value."

Liddell alludes to Yahoo's multiple suggestions that its company is worth far more than its battered stock price suggests.  Yahoo's leadership has tried to frustrate the merger process, citing that, in their opinion, it was not advantageous to the company in its current state.  Liddell says Yahoo is suffering from delusions of grandeur.  Liddell continued, "We have yet to see tangible evidence that our bid substantially undervalues the company.  In fact, we see the opposite."

Next week, if a deal is not reached, Microsoft will unveil its new battle plan according to Liddell.  He stated, "As outlined in our recent letter to the Yahoo board, unless we made progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives.  These alternatives clearly include taking an offer to Yahoo shareholders or to withdraw our proposal and focus on other opportunities."

Such "other opportunities" could involve internal growth or other acquisitions, according to Liddell.  Microsoft has had relatively little success in growing market share in the search engine and online advertising industry, so such efforts would likely be perceived with a bit of skepticism in the business community.

Yahoo did post strong first-quarter results, beating expectations, but Ballmer and Liddell both voiced that overall the picture for Yahoo is no better, and may actually be getting worse.  William Blair analyst Troy Mastin thinks that the pair is headed for a proxy battle.  Said Blair, "A proxy battle seems increasingly likely; it sounds (like) Yahoo's got a price in mind somewhere north of $35 and Microsoft has a price in mind somewhere south of $35."

Blair warned that walking away could be a bad mistake for Yahoo, as it has done little to reverse its long term slide.  "In a sense Yahoo, by playing hardball, is really playing with fire because they have limited alternatives," opinioned Blair.

Thursday was filled with rough news for Microsoft, when it reported weak Windows sales for its fiscal third quarter ending in March.  This comes as the company struggles with how to phase out XP, its only acceptable current solution for low-end PCs.  Liddell intended to focus his conference call mostly on these results, but turned heavily to the Yahoo topic, when he noted how many callers were checking in.  He stated that there was likely twice as many callers as normal do to curiosity about the state of the Yahoo deal.

Microsoft's stock still remains about a dollar below its level during the original value, devaluing its original offer slightly, but not as much as during some points in the last month.  Yahoo's stock has been taking a beating on the market over speculation that Microsoft may drop its offer.