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Microsoft Fails to Reach Yahoo Decision

As Microsoft Corp.'s directors met to weigh their takeover standoff with Yahoo Inc., a question loomed: How badly does Chief Executive Steve Ballmer want to own the Internet company?

Microsoft this week indicated a willingness to raise its bid to as much as $33 per Yahoo share, attempting to avoid the hostile takeover battle Mr. Ballmer had threatened, according to people with knowledge of the situation. Mr. Ballmer and Microsoft advisers lobbied Yahoo shareholders to bring pressure on its board to do a deal. Yet Mr. Ballmer in recent days has also appeared ready to walk away from Microsoft's offer altogether, say people familiar with the matter, as Yahoo and some of its shareholders seek significantly more money.

Microsoft didn't reach a final decision following Wednesday's board meeting, according to people familiar with the matter. The directors gave Mr. Ballmer broad discretion to either go hostile or abandon the Yahoo pursuit, and the final outcome remained a toss-up in the wake of the meeting, the people say. One middle path that remained an option was nominating a proxy slate of directors to replace Yahoo's board, while waiting to put any acquisition offer directly to Yahoo shareholders. An announcement was expected later in the week, say the people familiar with the matter.

The divide on price has remained a thorny issue. Major Yahoo shareholders have signaled they want in the range of $35 to $37 a share, with Yahoo's management and board similarly shooting for an offer in the upper 30s, say people familiar with the matter. Microsoft's original cash-and-stock offer for Yahoo was valued at $29.06 per share as of 4 p.m. trading Wednesday on the Nasdaq Stock Market.

Microsoft's decision will rely heavily on Mr. Ballmer. Even his closest lieutenants have been left guessing whether he will choose to launch Microsoft into a potentially tough hostile bid for Yahoo, or walk away.

The apparent indecision partly reflects Mr. Ballmer's personality, say people familiar with his thinking. He can be unpredictable and at times swayed by new information, say his friends and Microsoft colleagues. But it is also a sign of the tremendous weight on Mr. Ballmer, who has run Microsoft's day-to-day business since 2000, and is facing the planned move this summer by his longtime friend and business partner Bill Gates from an active role in Microsoft to full-time work in philanthropy.

The success of a Yahoo test to carry search advertising from Google Inc. has played a key role in emboldening some at Yahoo in their continued resistance to Microsoft's overtures. Pending developments this week in the Microsoft standoff, a broader pact along those lines could possibly be reached within the next week, say people familiar with the matter.

Meanwhile, Yahoo has continued to pursue negotiations that could lead to a merger with Time Warner Inc.'s AOL unit, say people familiar with the matter. Under such an arrangement, Time Warner would get a roughly 20% stake in Yahoo in return.

Write to Robert A. Guth at rob.guth@wsj.com

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