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Microsoft's board of directors is still weighing whether to adopt a hostile approach and nominate a proxy slate of directors to replace Yahoo's board, sweeten its cash-and-stock offer for the company, or possibly walk away from the deal, reports the Wall Street Journal.

A Microsoft-imposed deadline for Yahoo to start talks

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on a final deal or face a proxy battle passed last Saturday. An announcement from Microsoft is expected later this week.

Microsoft has indicated it would be willing to raise its bid from $31 to $33 per share but such an offer may still fall short of the $35-$37 per share that Yahoo's major shareholders are looking for.

Meanwhile, Microsoft chief executive Steve Ballmer, has appeared ready in recent days to abandon the offer. "We know what Yahoo is worth to us," Ballmer said last week. "We offered a lot of money: $44 billion. If its board thinks that's fair, great. If not, we'll move forward."

But most Wall Street analysts dismiss this as a hardball negotiating tactic rather than a real threat to end its two-year-long pursuit of a deal.

The value of Microsoft's offer, originally valued at $44.6 billion at $31 a share, has fallen to $29.06 a share due to a drop in the value of Microsoft's stock.