Steve Ballmer, the chief executive of Microsoft, threw down the gauntlet in the battle for Yahoo! yesterday, hinting that the software group would walk away if its unsolicited offer was rejected by investors.

Mr Ballmer’s remarks came a day after quarterly results from Yahoo! that were better than expected, which prompted speculation that Microsoft could be forced to raise its cash-and- shares offer to win control of the world’s No 2 search engine.

Speaking after he had addressed a conference in Milan, Mr Ballmer said: “We know what Yahoo! is worth to us. We offered a lot of money: $44 billion. If their board thinks that’s fair, great. If not, we’ll move forward without a merger.”

He added at a news conference later: “Time is money. We made clear in the last letter we sent [to Yahoo!'s board]. We’ll see what happens.” However, the Microsoft chief executive was careful not to rule out an improved bid absolutely.

Yahoo! shares fell 46 cents after the remarks to close at $28.08, while Microsoft rose $1.20 to $31.45. Microsoft’s cash-and-shares bid is now worth $30.31 per Yahoo! share. Despite Yahoo!’s resistance, its shares have remained consistently below the value of the bid.

The two companies are at an impasse, with Yahoo! saying that it wants a higher bid before it will engage in meaningful talks, while Mr Ballmer is going direct to his target’s shareholders. Microsoft has given Yahoo! until Saturday to respond, after which time it has said that it will propose its own candidates for the Yahoo! board in what will be a critical test of shareholder opinion.

Yahoo! reported on Tuesday income of $150 million after one-off gains and stock option costs, representing 11 cents a share. That figure was two cents better than predicted by Wall Street. Revenues were ahead 9 per cent, but the company stuck to its guidance of 3 to 15 per cent growth for the year and said that there were signs that financial advertising was softening as a result of the impact of the credit crunch.

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