Microsoft, the world's biggest software maker, could make its next move on Yahoo! as early as today, following the failure of the companies to reach an agreement over a takeover deal.

The software giant is understood to be considering putting forward an alternative list of directors to replace the current Yahoo! board. This would put on hold, a full hostile takeover put directly to the internet search engine's shareholders.

The tactic of setting up the alternative board, reported by The Wall Street Journal, raises the prospect that Microsoft could continue to circle Yahoo! without making its $41 billion offer hostile for another two months, until July 12 - the date by which Yahoo! must hold its annual meeting and elect a new board.

The deadline Microsoft set for going hostile passed on Saturday, and since then there have been no further negotiations between the parties.

Holding off from a hostile approach would give Microsoft shares a chance to recover from their recent fall - potentially increasing the value of its offer for Yahoo!.

Since Microsoft announced its bid on February 1, its shares have fallen by 12 per cent from $32.60 to $28.64, meaning that its original $31-a-share offer was valued at $29.12 as of the close of markets yesterday.

Yahoo!'s shares have risen by 43 per cent - from $19.18 to $27.36 in the same period.

It would also create an unexpected 'middle path' for Microsoft, where it could avoid walking away from the bid but at the same time increase the pressure on Yahoo!'s board to negotiate given the apparent lack of any alternatives to Microsoft's offer which would raise Yahoo!'s share price.

A sticking point for Yahoo!'s institutional investors has been the price, with several shareholders having indicated they want an offer close to $35-a-share.

The largest Yahoo! shareholder - with a 6.4 per cent stake valued at just over $2.3 billion - is Capital Research Global Investors, followed by Legg Mason Capital Management, which has 6.3 per cent, and Capital World Investors, which has 5.2 per cent.

Jerry Yang, Yahoo!'s chief executive, has an indirect holding of 3.2 per cent, while David Filo, with whom Mr Yang founded the company, has 5.9 per cent.

Microsoft has reportedly tabled a list of 10 candidates that it is ready to nominate for election to Yahoo!'s board, according to reports. From the date on which Yahoo! publicly announced its meeting, Microsoft would have 10 days to submit its proxy slate.

Steve Ballmer, Microsoft's chief executive, has also indicated, however, that the company would be willing to 'go it alone' against Google in the online advertising market without Yahoo!.

Speaking after a speech in Milan last week, 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.”

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