Alright, this is just a prediction.
The decision for Microsoft this weekend is whether they still want Yahoo or not. If they still want it, it will be worth it for them to expedite the deal and increase their offer. Going into a proxy fight doesn’t help anyone, and just drags this out. So, in my view, there is zero chance of a proxy fight; if Microsoft still wants Yahoo, they’ll raise the offer.
If, however, Microsoft has decided they don’t want Yahoo, they’ll walk away. I don’t believe those that speculate Ballmer would go through with the deal to avoid “losing face”. There are plenty that would think Microsoft did the right thing by walking anyway.
Now, should Microsoft walk away, the Yahoo stock will tumble; if it stops at ~$20, where it was before the Microsoft offer, Yahoo should be pretty happy. It may drop steeper than that. Yahoo management knows this. If Microsoft really wanted to play poker here, they could just wait 6 months and pick it up for even less. But Microsoft doesn’t want that. Microsoft wants this deal done now so that they can get back to business. Yahoo doesn’t want the stock to tumble.
Based on Microsoft’s public comments about the advertising market over the next 5-10 years, I believe Microsoft wants Yahoo. They believe the market they are trying to conquer is far larger than the price of Yahoo. They don’t want to pay more for Yahoo (who would), but they know that any price less than $50B still pays itself back over the next 10 years if successful (and of course, Microsoft internally believes it will succeed). As such, they’re going to do everything they can to close this deal.
I suspect a nominally increased offer from Microsoft has already been made. This will be enough that the chief Yahoos can claim victory and accept the deal at the same time. This thing is going forward.
But what do I know. More predictions.