February 21, 2008 5:28 AM PST

Yahoo, Microsoft nearing the end game

Posted by Charles Cooper

The clock is ticking down for Yahoo CEO Jerry Yang to unveil Plan B--if he really has one. Microsoft believes that he's bluffing and plans to pursue this deal through to a conclusion.

In an interview with my colleague Ina Fried on Wednesday, Bill Gates made clear why Microsoft's in love with this grand vision of a future "Micro-hoo."

Jerry Yang

"We think that the combination with Yahoo would accelerate things in a very exciting way, because they do have great engineers, they have done a lot of great work. So if you combine their work and our work, the speed at which you can innovate and get things done is just dramatically more rapid," Gates said. "So it's really about the people there that want to join in and create a better search, better portal for a very broad set of customers. That's the vision that's behind saying, 'hey, wouldn't this be a great combination?'"

I'm still not convinced that this won't turn into a disaster, with all the messy corporate-culture clashes that always attend mergers--but on a massive scale. Still, Gates and Steve Ballmer believe that they can successfully steer clear of the potholes, and they're willing to put more than $40 billion behind that bet.

They're also offering Yang a way to exit the stage as a hero to Yahoo shareholders. But the guy is playing hard to get. Last week, we learned about Yahoo's plans to hand out "golden parachutes" to employees in the event of a change of control. Meanwhile, the rumor mill has Yang speed-dialing every mogul he ever met in hopes of stiff-arming the "Beastmaster" of Fake Steve Jobs fame. (If you want to track all the twists and turns in this story so far, check out our special coverage of the Microsoft-Yahoo events over the last month.)

To be sure, it's been a good show, but Yang's running out of time. He's had more than a half year to think about what's next, since replacing Terry Semel in June. If he was planning to unveil a grand plan, events passed him by.

Over at Silicon Alley Insider, Henry Blodget reports that his banking sources say this is a done deal in all but name. He also says Yahoo's not likely to get Microsoft to substantially raise its offer:

"The price concession will not necessarily raise the value of the offer above $31 per share, the original value (it's currently $28.80). Microsoft will argue that its stock is down with the market and that, but for Microsoft's offer, Yahoo's stock would be down too. (This will be B.S.--MSFT is down more than the S&P 500--but perhaps Microsoft's bankers will find some tech index to compare MSFT's stock to)."

To be continued.