Yahoo maintains silence

(Fortune) -- No news isn't always good news. Four days have passed since the expiration of Microsoft's deadline for Yahoo to accept its buyout offer or face a hostile takeover.

Microsoft declared it would launch a proxy fight to oust Yahoo's board or walk away from the deal if the two failed to reach an agreement by April 26.

So far the software giant has not indicated what it will do, although the Wall Street Journal reported that it could make its next move as early as Wednesday. A Microsoft (MSFT, Fortune 500) spokesman said Tuesday the company has "nothing to report." A Yahoo representative also offered no news.

While everyone waits for Microsoft to act, industry watchers have been busy speculating what will happen next.

"My guess is that Microsoft will follow through with its threat to file a slate of directors by the end of the week," says Ryan Jacob, a portfolio manager with the Jacob Internet Fund, which holds a stake in Yahoo.

The alternative is for Microsoft to abandon its deal. Microsoft executives last week strongly hinted that they would be willing to walk away.

But analysts have said that scenario is unlikely to happen. "By making a move for YHOO, Microsoft has clearly acknowledged that their organic efforts to ramp-up online business have not met their own expectations," wrote Collins Stewarts analyst Sandeep Aggarwal in a note to clients.

If Microsoft proceed with a proxy battle, the question is how much will it offer to Yahoo (YHOO, Fortune 500) shareholders. Jacob predicts a carrot-and-stick approach in which Microsoft would sweeten the bid slightly while initiating a hostile takeover.

"The stick is launch the proxy battle and the carrot is convert the deal to cash," he says. Yahoo has repeatedly rebuffed Microsoft's advances because it says it wants a better price. The original cash-and-stock deal, valued at $31 a share, is now worth $29.15 based on Microsoft's share price Tuesday.

At stake is Microsoft and Yahoo's ability to compete with Google as advertising worth billions continues to flood the Internet.

According to eMarketer, advertisers worldwide spent $41 billion online in 2007 - a figure that is expected to double by 2011 as advertisers chase after consumers who are spending more time on the web and less time watching TV, reading newspapers or listening to the radio. Google controls 40% of the overall online ad market while Yahoo and Microsoft's MSN have 15% and 5.2%, respectively, according to Nielsen.

Microsoft fears that Google (GOOG, Fortune 500), which makes most of its money from small text ads that appear next to search results, will seizer an even bigger piece of the online ad pie as MSN falls further behind. In March, Google acquired DoubleClick, a big player in the increasingly lucrative market for online display ads.

Microsoft isn't the only one worried about Google. A number of media and Internet giants have eyed Yahoo - one of the last independent large-scale online players. In recent months, Yahoo has discussed a variety of tie-ups with Time Warner (TWX, Fortune 500), News Corp (NWS, Fortune 500). and Google.

"Microsoft's forcing ... everyone to make a move," says Frank Addante, CEO of the Rubicon Project, which helps publishers manage their online ad inventory.