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Microsoft Preps Proxy Fight for Yahoo!

The company is planning its alternative to raising its buyout bid.

SAN FRANCISCO -- Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report is taking a hard-line approach in its quest to reel in Yahoo! (YHOO) .

Microsoft will launch a fight for control of Yahoo!'s board this week, according to a report Tuesday in

The New York Times

.

Intending to pressure Yahoo! directors to negotiate with the Redmond, Wash., software company, which made a $31-a-share bid Feb. 1, Microsoft will nominate a slate of directors to Yahoo!'s board.

Running a proxy battle is viewed as a far less costly way to buy the Internet company than raising its initial bid of $44.6 billion, which Yahoo! rejected. The value of that half-cash/half-stock bid has fallen since Microsoft's share price dropped 13% to close at $28.31 on Friday. Yahoo! reportedly is holding out for $40 a share.

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Shares of Microsoft were up 35 cents, or 1.2%, to $28.66 in recent trading. Yahoo! was down 63 cents, or 2.1%, to $29.03.

In a proxy battle, institutional investors will back Microsoft's move. With

most top fund managers holding larger stakes in Microsoft than in Yahoo!, they would be motivated to see the deal close at a lower rather than a higher price.

Yahoo!'s board "should take a hard look" at Microsoft's original offer, Microsoft Chairman Bill Gates told the

Associated Press

Monday.