For Yahoo, clock ticks down to Microsoft deadline

By Eric Auchard - Analysis

SAN FRANCISCO (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) faces a critical week that could decide whether the pioneering Web company can remain independent or must surrender to an unsolicited takeover by Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz).

Yahoo is racing to forge a credible alternative that lets it stay independent or at least forces Microsoft to raise its $31 a share cash-and-stock bid, now valued at $42.8 billion.

"Yahoo is willing to try things at the 11th hour, that it never felt the urgency to try," Sanford C. Bernstein analyst Jeffrey Lindsay said. "Shareholders win, either way."

"They are coming up with some of their best stuff now," he added. "We just wish they had done these things last year."

When it reports first-quarter results on Tuesday, Yahoo has perhaps a last chance to demonstrate some financial strength and progress it has made in stabilizing the company's Internet media and advertising business after two years of decline.

Mid-week, Yahoo is set to complete a test with Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz) on whether Google should run a piece of its Web search ad sales, a move sources familiar with the talks say is part of a plan to merge with Time Warner's (TWX.N: Quote, Profile, Research, Stock Buzz) AOL and fend off Microsoft.

Time runs out by Saturday, the date Microsoft has set for Yahoo to accept the deal or face a drawn-out proxy battle by Microsoft to unseat Yahoo's board. Two weeks ago the software giant threatened to lower its offer if Yahoo did not conclude friendly merger talks with Microsoft by April 26th.

Yahoo's chief technology officer will use a speech on Thursday at the Web 2.0 Expo industry show to spell out a strategy to open up Yahoo services such as e-mail, news, sports and advertising to make them more relevant across the Web, not just for users drawn inside its own sites.