Barring last-minute, behind-the-scenes maneuverings, the stalemate between Microsoft Corp. and Yahoo! Inc. is expected to persist through the weekend, when Microsoft's three-week deadline to reach an amicable agreement on an acquisition expires.

Microsoft on April 5 said if an agreement with Yahoo! was not concluded by April 26, it would take its case directly to Yahoo! shareholders and initiate a proxy contest for seats on the Sunnyvale, Calif., company's board of directors. Microsoft this week leaked names of its candidates to The Wall Street Journal, which also reported that employees at the Redmond, Wash., company have expressed skepticism about the deal. In addition, the New York Post, citing unnamed sources, reported that Microsoft CEO Steven Ballmer could reach out to Yahoo! and say it would sweeten its $31 a share, $43 billion offer slightly if Yahoo! agrees to formal deal discussions.

"Obviously with all this being leaked it's going down to the wire," said Jeffrey Lindsay, an analyst with Sanford C. Bernstein & Co. "Microsoft's really trying to persuade Yahoo! to negotiate.

"If Yahoo! won't negotiate, Ballmer will have prepared his pitch for shareholders and take it straight to them," he added.

But Lindsay said nothing really has changed as far as the most likely outcome--Microsoft acquiring Yahoo!, which he still expects to happen within "a matter of weeks" unless Yahoo! can somehow propose a viable alternative.

"I don't know if they have much more to put into the game," Lindsay said. "I'm sure they've been talking to AOL and talking with Google but unless they have a deal in the works, we would expect this to end in a sale to Microsoft."

Yahoo! has been in discussions with New York-based Time Warner Inc. regarding an acquisition of AOL's assets with the exception of its Internet access business, but Lindsay said unless specific terms of a deal are revealed he could not say whether it was a better alternative to Microsoft's offer. Yahoo!'s other potential alternative, outsourcing its search advertising to Google Inc. of Mountain View, Calif.-based, has already gotten the attention of the Justice Department, according to published reports, and a partnership between the No. 1 and No. 2 search players appears unlikely to fly with regulators, though it still could thwart Microsoft from completing a deal for Yahoo! quickly.

Indeed, speed is perhaps the only reason why most analysts still expect Microsoft to sweeten its bid. Microsoft obviously does not want to bid against itself, and every $1 increase in its per-share offer price adds up to a cool $1.4 billion, based on the number of shares Yahoo! has outstanding, a sizable figuring consider there already are concerns about combining the two companies.

"Microsoft seems to be negotiating their side very well and conceding nothing up front," Lindsay said. "The only thing left for the Yahoo! board to negotiate is a quick close to get them to sweeten the offer."

If Yahoo! remains obstinate and Microsoft make good on its proxy fight threat, it stands a good chance of getting its nominees elected. Lindsay estimates Yahoo!'s underlying valuation in the absence of an offer from Microsoft at $25.48 a share. He said institutions, which control a large portion of Yahoo!'s shares, understand this and would likely prefer to see Microsoft succeed.

Those holding out hope with Yahoo! CEO Jerry Yang for a last-minute, fairy-tale ending where another bidder swoops in and saves Yahoo! from Microsoft's clutches are probably out of luck. Tom Taulli, founder of DealProfiles.com, an online service that tracks mergers and acquisitions, said competing offers from companies that may not have been a part of the conversation before, such as Finnish mobile phone provider Nokia Oyj or even Fairfield, Conn.-based General Electric Co. remain unlikely since neither provide the cost savings a deal with Microsoft does and neither would be interested in getting into a bidding war for Yahoo!.

"Yahoo! has to know what the conclusion is--that they're going to be bought out," Taulli said. "They can come to the table and get another dollar or two or hold out as long as they can." -- David Shabelman