Yahoo and Microsoft haven’t been able to agree on very much over the last few months so it now appears fairly likely the battle will head into the shareholder meeting on August 1st.

Microsoft hasn’t lost many of these matches and the smart money remains on them to “win” this battle and take over Yahoo.   My take is that there is now enough ego investment on all sides that you can expect Microsoft to be pretty ruthless in their efforts to replace the board and overhaul the company.  Of course with with management leaving Yahoo at a record pace anyway, Microsoft is likely to inherit more of a management skeleton than a burden, and they are probably fine with this.

How poison will Yahoo make the pill?     As a shareholder I’m concerned about this but comforted that the current board and Jerry Yang have a huge financial stake in this outcome.    To Bostock and Yang’s huge credit they has been playing this game with their own money, though I’d argue they have not been playing it very well or with anybody’s best interests in mind (including their own).    My take is that Yahoo simply could not readjust their expectations from the dramatic success story they enjoyed early on and the belief they could see that kind of success again.     This gave them a perception of the current value of Yahoo that was completely out of line with the market perception, which by definition is the real value of a company.    The $33 sale price has come from the desparate realization by Yahoo that they are going to lose the battle and possibly be forced to sell well below this price, though I think it’ll be in Microsoft’s interest to keep the tensions to a minimum and keep their new “post Yahoo merger” shareholders marginally happy with an offer above $30.

That said, Ballmer is clearly smelling the blood in the water and could probably force an eventual sale of Yahoo in mid to high twenties by jerking the strings for a few more months to soften up Icahn and other major shareholders who are clearly looking for something above the $31 offer Yahoo rejected a short time ago.  Without Microsoft Yahoo’s share price would be well under $20 and this is now clear to everybody.

So the boxing match moves into the final rounds.   It’s pretty much a corporate death match between Jerry “the Yahoo” Yang and Steve “the Basher” Ballmer.    Although my money is invested with Jerry right now, I’d be betting on Ballmer to win this fight.

Disclosure:  Long on YHOO