Microsoft (MSFT) leaks news that it is willing to pay $32-$33 for Yahoo--in a last attempt to get Yahoo (YHOO) shareholders to pressure the board to sell. It adds that Yahoo's dope-smoking board wants "upper $30s." As at the start of this process, $34-$35 should get the deal done.

This leak is obviously a calulated attempt to dangle another few dollars in front of Yahoo shareholders in hopes that they will put pressure on Yahoo to strike a deal. The companies now appear to no more than $4 apart, so a deal suddenly seems a lot more likely.

Since the leak is designed to spur Yahoo shareholders into action, it includes the information that Microsoft does not want to pursue a hostile deal and may walk away (Translation: tick-tock, tick-tock).

*UPDATE: Since the original story appeared, it has been revised to say that Microsoft's board "failed to reach a decision" today and will now make the decision "later this week." Rather than "failed to reach a decision," we suspect it would be more accurate to say Microsot's board "decided to wait to see how Yahoo responded to the raised offer in the WSJ."

From the WSJ:

Microsoft directors are meeting Wednesday to weigh the company's approach in its takeover standoff with Yahoo and an announcement could come following the meeting, say people familiar with the matter.

The people say that it's unclear what final approach Microsoft will take [translation: We still might walk, so take it while you can] but that discussions between the two companies have been stymied by a stark divide on price. Microsoft has said privately in recent days that it's willing to offer as much as $32 or $33 per share, well above the $29.12 value of its original cash-and-stock offer as of Tuesday's market close, these people say. But major Yahoo shareholders have signaled they want in the range of $35 to $37 per share, with Yahoo's management and board similarly shooting for an offer in the upper $30s, they add.

Having failed to reach a friendly deal with Yahoo so far, Microsoft has been lobbying big Yahoo shareholders this week to pressure Yahoo's board, say the people familiar with the matter. Chief Executive Steve Ballmer and Bear Stearns Cos. CEO Alan Schwartz, a Microsoft adviser, have been personally involved in that lobbying effort, the people say. The software giant is reluctant to carry through on its threat to attempt a hostile takeover and it remains possible Microsoft could walk away from its offer, for the time being at least.

The WSJ adds that Yahoo's search deal with Google changed the balance of power in the negotiation, which we expected it would.

Microsoft's board will reportedly follow Steve Ballmer's lead on this decision. Steve has reportedly been waffling in recent days about whether to walk away or raise the bid (so much for the proxy fight). We suspect Ballmer and the board may now wait and see what impact this leak has before making their final decision.

See Also:
Microsoft Advisor: Yahoo Still Smoking Dope
Yahoo's Brilliant Search Deal With Google Bolsters Argument For Higher Price