Microsoft turns up Yahoo heat

Yahoo has missed the deadline set by Microsoft to accept its $31-a-share takeover offer now worth $42.7 billion (£21.6 billion), leading many on Wall Street to believe the fight will turn nastier.

Microsoft has threatened a bruising proxy battle in which it would force its own people on to the Yahoo board and ram the deal through.

Yahoo has so far failed to seal an alternative deal while its efforts to nudge up the price have met with stonewalling from Microsoft.

Chief executive Steve Ballmer said last week that his company would either go hostile or walk away from the deal if Yahoo didn't give him a favourable answer at the weekend.

However, with Microsoft's online division still operating deep in the red, most analysts think his talk of dumping the deal is bluff. He is just as unlikely to improve the deal.

Yahoo said last week that it remained open to a merger with Microsoft, but the current offer "substantially undervalues" the company, and it continues to explore alternative deals.