Only three months ago Microsoft had seemed so bold. After more than a year scouring Yahoo!’s books, with the aid of Morgan Stanley bankers and Blackstone, the private equity firm, Steve Ballmer, Microsoft’s chief executive, and the software group’s co-founder Bill Gates decided to pounce.

A phone call from Mr Ballmer to Jerry Yang, co-founder of Yahoo! and newly reinstated chief executive of the online search engine, revealed the type of hand Microsoft was playing.

Mr Ballmer was offering what appeared to be a knockout 62 per cent premium, an offer that it knew would discourage most other counteroffers. To add to the punch, Mr Ballmer threatened to sack Yahoo!’s board with a proxy fight if Mr Yang resisted.

Mr Ballmer also had logic on his side. A combined group made good business sense – Yahoo! had been losing market share in online advertising and profitability while Google, the world’s largest internet company, had grown more powerful. A tie-up of the No 2 and No 3 players would have created a stronger rival to Google.

Wall Street expected Microsoft to get Yahoo!. Microsoft also thought that it would get Yahoo!, with or without Mr Yang’s consent. However, the swaggering approach of the $273 billion software group at the beginning of February was absent at the weekend.

A letter to Mr Yang from Mr Ballmer published on Saturday night was conciliatory, offering “personal thanks for your consideration of our proposal”. Mr Ballmer concluded: “By failing to reach an agreement with us, you and your stockholders have left significant value on the table. But clearly a deal is not to be.”

The initial bullying approach having failed, Mr Ballmer may be hoping that parting on good terms (publicly, at least) will leave Mr Yang likelier to return to Microsoft if he fails to find a rival offer or to increase Yahoo’s share price to match the $33 that was on the table just a few hours ago.

Yahoo!’s response to the threat of a hostile takeover was as low key as Microsoft’s offer was threatening. Yahoo!’s tactic was to ignore Microsoft publicly, dodge its punches and threaten to outsource key relationships to Google. Such a step would have made Yahoo! a far less attractive target.

Mr Yang’s quiet resistance has worked, but, in the longer term, he may find it impossible to lift Yahoo!’s stock to the price he rejected and may have to go back to the suitor he has scorned.

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