YAHOO’S shares took a tumble late Friday on rumours that Microsoft may revise or walk away from its $44.6 billion (£22.3 billion) bid for its smaller rival. The two sides have made no progress despite several meetings in the two months that have elapsed since Microsoft’s offer.

Microsoft chief executive Steve Ballmer met Yahoo’s founder Jerry Yang last week. The meeting followed press reports that he was not prepared to increase his offer. Yahoo’s management were reportedly furious about the pre-meeting leak and the talks failed to meet any conclusions.

No other rival bids have emerged since Microsoft made its move in February and according to press reports Microsoft executives believe Yahoo's share of the search market and overall condition have deteriorated since the bid. Analysts said Microsoft now appeared to be playing hard ball — withdrawing its offer would be devastating for Yahoo’s share price — but they believed Microsoft still wanted to close the deal.

“Ultimately I think Yahoo will fall to Microsoft,” said one analyst. He said Yahoo was making aggressive forecasts for its future earnings and was probably hoping to ride out Microsoft’s attack in the hope that better results would lead to a higher offer.

“It’s a big gamble, if they don’t meet those expectations, they are in a lot of trouble. They have been doing a lot of roadshows trying too convince shareholders that they can go it alone and they haven’t got a good response,” said the analyst. Analysts are expecting earnings data from the company within the month.

Microsoft is believed to have offered $50 billion for Yahoo in 2006 but was rejected by then chief executive Terry Semel.

Yahoo’s fortunes have since declined further against intense competition from Google. The value of Microsoft’s latest offer is now several billion dollars below the February price thanks to the decline in Microsoft’s stock.

Yahoo's board is believed to be meeting early this week in order to discuss its next move.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax