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Microsoft to Yahoo - talk or else...

• Rory Cellan-Jones
• 6 Apr 08, 08:03 GMT

There've been suggestions in recent days that Microsoft was about to give up on its bid for Yahoo, having got tired of being stonewalled -and nervous about the worsening economic outlook. Instead, Steve Ballmer has abandoned the softly softly approach and sent a letter to Yahoo's board making it clear he is now willing to play hardball.

three weeks to sit down and "negotiate a definitive agreement on a combination of our companies". And then comes the ultimatum - if Yahoo does not respond then Microsoft will get heavy. It will go straight to the shareholders, attempt to get a new board elected, and - this is the bit that matters - come back with a lower bid. Or rather one which, in a rather deliciously threatening phrase ,"will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal."

Yahoo's board seem to have hoped that by unveiling various new initiatives , making cosy noises to the likes of Google, and pointedly ignoring the wolf at the door, they could persuade Microsoft to walk away quietly. But the fall in the share-price in the middle of last week as rumours of a Microsoft withdrawal began to swirl showed that this was not a pain-free strategy.

So now it looks as though Yahoo's directors have a choice - do a deal at Microsoft's current price, or convince shareholders that it's worth seeing the share price fall in the short-term because your board has a cunning plan for long-term growth. Mind you, it's also clear from Mr Ballmer's letter that Microsoft is now nervous about the economic climate in which this deal is being pursued, so there is pressure at his end too. Thankfully, for those getting a little bored by this protracted saga, it looks as though we will soon hear how it is all going to end.

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