Steve Ballmer, Microsoft’s chief executive, will decide this week whether to step up his campaign against Yahoo! and is likely to nominate an alternative board of directors and demand that its target set a date for its annual meeting.

The software giant, which has failed to bring Yahoo! to the table after its $41 billion (£20.6 billion) hostile bid, has signed up “credible, independent” nominees to negotiate a takeover.

It is possible that Mr Ballmer could abandon the bid. Last week he surprised his camp with remarks, made at a conference in Italy, that he could drop it, but, while his comments were serious, few believe that he will do so at this point.

The opinion of Yahoo! shareholders has yet to be tested and, with Microsoft nominating an alternative board, Mr Ballmer would be able to establish how much support he has for the bid of $29.43 a share. Yahoo! shares closed 37 cents down yesterday at $26.43 amid fears that the impasse will not be broken soon.

Last month, Yahoo! withdrew a deadline for the nomination of directors to its board and the company has yet to set a date for its annual meeting. Under the law of Delaware, the state in which Yahoo! is incorporated, the company must hold its annual meeting within 13 months of the previous one, with the last date being July 12.

Microsoft could also launch a formal exchange offer, into which Yahoo! investors could tender their shares, but it is reluctant to do so.

About 20 to 25 per cent of Yahoo! shares are estimated to be in the hands of short-term arbitrageurs, which are likely to be in favour of a bid. Jerry Yang and David Filo, the founders, neither of whom is keen on the bid, hold 10 per cent between them.

Microsoft declined to comment. Yahoo! said that it believed that the ball was in Microsoft’s court. It is continuing to talk to Time Warner and News Corporation, parent company of The Times, about a potential rescue.

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