UPDATE 3-Microsoft poised to detail next moves on Yahoo-CEO

(Adds Microsoft likely to go hostile)

By Anupreeta Das and Eric Auchard

SAN FRANCISCO, May 1 (Reuters) - Microsoft Corp (MSFT.O) Chief Executive Steve Ballmer said on Thursday that walking away from a deal with Yahoo remained one of "three big options" the company is weighing and to expect an announcement shortly.

Neither side would comment on whether they were seeking a last-minute deal before Microsoft makes good on its threat to turn its unsolicited bid, currently worth $42.4 billion, into a hostile takeover battle.

The Wall Street Journal reported late on Thursday that Microsoft appeared to be leaning toward going hostile in its pursuit of the Internet company, citing people familiar with the matter. An announcement could come on Friday, the Journal said.

A Microsoft spokeman declined to comment.

But in a sign that Yahoo continues to resist Microsoft's embrace, a source familiar with discussions between Yahoo and Google Inc (GOOG.O) said a partnership could come as early as next week. The non-exclusive partnership would involve Yahoo carrying Google advertising alongside Yahoo's Web search results.

Such a partnership would not preclude a deal with Microsoft, the source said.

Ballmer told employees during a regularly scheduled company Town Hall meeting that Yahoo is valuable as part of a strategy to beat Microsoft arch-rival Google, but there are limits on the price Microsoft is ready to pay.

"Yahoo's not a strategy, it's a part of a strategy," Ballmer declared. His remarks were first reported by Silicon Alley Insider, whose reporter said he monitored the internal conference call. A company spokesman confirmed the comments.

"We're interested to pay for it at some level and beyond that level we're not willing to pay for it. I know exactly what Yahoo is worth to me ... I won't go a dime above and I will go to what I think it's worth if that gets the deal done," he said.

THREE OPTIONS

Microsoft has promised this would be the week that it spells out its next moves if Yahoo allowed a deadline set for last Saturday to expire on its three-month-old offer to buy Yahoo for $31 per share in cash and stock.

Seeking to force Yahoo to the negotiating table in early April, Ballmer wrote a letter to Yahoo's board of directors threatening to cut the bid and mount a proxy fight to remove the board if Yahoo did not reach a deal by April 26.

Ballmer went further last week by saying Microsoft was considering walking away from the deal. But most Wall Street analysts dismiss this as a hardball negotiating tactic rather than a real threat to end its two-year-long pursuit of a deal.

On Thursday, five days after Microsoft's deadline for reaching a negotiated deal expired, Ballmer told employees "we ought to announce something in very short order."