Microsoft notified Yahoo’s board of directors that a decision regarding the merger of the two must be reached within the next three weeks. If the announced deadline will be crossed, Microsoft will make its offer available, most probably at a lower cost, to the Yahoo shareholders.

CEO Steven A. Ballmer explained all backlashes in a letter sent by e-mail. “If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective, which will be reflected in the terms of our proposal,” Mr. Ballmer wrote.

The initial offer made by Microsoft on February 1 was $31 a share, adding up to a grand total of approximately $44.6 billion but after a downfall in Microsoft’s shares, it is now worth about $42 billion, still making it, if finalized, the biggest-ever takeover in the high-tech industry.

On February 11, Jerry Yang rejected the Microsoft’s bid saying that it undervalues the company. Yahoo asked for a $12 billion raise in Microsoft’s offer, which has not happened so far. Rumors have it that Microsoft already turned to Bear Stearns Cos. Services in the Yahoo situation.

It is common knowledge that Yahoo has been searching for a backup option to Microsoft’s offer, discussing different partnership scenarios with Google, AOL and the News Corporation.

According to BBC, Yahoo estimated last month that it will almost double its operating cash flow over the next three years, generating an estimated $8,8 billion in revenue.