Jerry Yang, the chief executive and co-founder of Yahoo!, cannot have planned it to turn out this way.

Five months ago, when Mr Yang first spurned a $42 billion (£21.5 billion) offer from Microsoft, he seemed to have deftly dodged the bullying advances of the software giant. The Seattle-based company had bragged in its first approach, that should Yahoo! fail to yield to its generous cash and shares offer, it would simply wipe out the board with a proxy fight. Microsoft briefed anyone who would listen that they were confident they would succeed and had spent a year plotting with one of Blackstone’s main partners – Jill Greenthal – how to seize control of Yahoo!

Five months on, things have turned out quite differently. While Mr Yang appointed Goldman Sachs for advice on how to defend itself from a Microsoft bid, he appears to have ignored the investment bank’s guidance.

It took Mr Yang a week to even reject the first offer that Microsoft made, which valued the internet search engine at a 62 per cent premium. He issued a terse statement claiming that the approach undervalued the company. He implied to shareholders that he could reverse the consecutive quarters of sliding market share all on his own. He also implied that he could boost the Yahoo! share price to the $31 a share Microsoft had offered.

Many on Wall Street had interpreted his behaviour as a sign that Mr Yang had a strong hand and that he was plotting a different transformational deal with either News Corporation, the owner of The Times, with Google, his far bigger rival, or with AOL, the internet arm of Time Warner.

While it has become public that Mr Yang approached all three companies, talks with all of them have gone cold.

Five months on, it appears that Mr Yang has pursued a strategy of simply trying to ignore Microsoft. In their first formal meeting Microsoft executives made a presentation to Mr Yang about their vision for the combined company, and the Yahoo team said nothing.

By May, Mr Yang had failed to engage in serious talks with Microsoft and sniffed at a revised $47 billion offer, which valued Yahoo! at a 70 per cent premium. He had managed to scare off Microsoft by threatening to hive off its most lucrative business to Google and introducing an employee severance plan that would have cost the software company up to $2.7 billion, on top of its $47 billion approach.

But to what end? Mr Yang’s refusal to take Microsoft seriously, attracted a far more menacing threat in the form of Carl Icahn, the shareholder activist. Under the threat of another proxy fight in August, Icahn is demanding that Yahoo! engage in serious talks with Microsoft.

Shareholders should hope that Mr Yang secures a deal with Microsoft in the next few weeks – if Icahn does replace all nine directors on the Yahoo! board, it would leave the online group in an even more vulnerable position.

This week, Yahoo! insisted that it is “rewiring” the company, and engaged in talks with Steve Ballmer, the Microsoft chief executive. It is thought that they are discussing the possibility of a partial sale with Microsoft taking a passive, minority stake – but such an outcome would be unlikely to satisfy Icahn with a deal that furnishes him with much less than the $33 per share on the table just last month.

Mr Yang’s strategy in dealing with Microsoft has led his company down a far more treacherous path.

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