The “deadline” imposed by Microsoft on Yahoo expired yesterday, which makes it likely that Microsoft is either preparing to drop their bid or – and this appears a more likely scenario – preparing for a hostile takeover where they’ll try to get a new slate of directors approved for Yahoo who would view the takeover favorably, leading to a probable merge this summer.

Yahoo’s board meets today and although it would be interesting to be there I’m certainly not envious of the Yahoo board right now. If Microsoft drops their current offer Yahoo stock is likely to drop severely – perhaps even below the 52 week low into the high teens. Shareholders will be understandably upset if fighting Microsoft has led to nothing more than a 30%+ drop in share price. Some have suggested a Google advertising partnership may help matters but I’m skeptical that the broad market views Yahoo as favorably as Yahoo seems to think. If they did one would expect Microsoft’s share price to be faring much better than it has while people await the takeover verdict. In fact most stock watchers are convinced that if Microsoft announces they are dropping the quest for Yahoo MSFT will see a significant jump in share price.

Larry at CNET has noted some interesting alternative scenarios to a Microsoft Yahoo merger, even including a CNET option.

I think my prediction is the same as it has been for some time: Microsoft will start the hostilities but will also let Yahoo know they can get about $34 per share if Yahoo does not put up a fight. Yahoo will (finally) give in to avoid a potential price meltdown, lawsuits, and a fight that is only going to misdirect energy while both companies watch Google scoop up the increasing online advertising revenues.

Disclosure: Long on YHOO