In an escalation of its fight for Yahoo, Microsoft will authorize a proxy fight at the Internet company this week, people briefed on the matter told DealBook. Unless Yahoo quickly reverses course and enters into talks, Microsoft would then seek to nominate a slate of directors to Yahoo’s board by March 13, the final deadline for nominations, and pursue a lenthy campaign to oust the board.

The move, expected to cost about $20 million to $30 million, was Microsoft’s alternative to raising its $44.6 billion bid and is seen as a less expensive way to put pressure on Yahoo’s board. Yahoo rejected Microsoft’s original offer as undervalued.

It is only the latest twist in one of the biggest Internet takeover battles in recent years. Since unveiling its aggressive offer, Microsoft has hinted that it would pursue all avenues to lock up Yahoo as it races to catch up to Google.

As the software giant’s stock has fallen 12.8 percent since announcing the offer two weeks ago, so has the nominal value of the deal, to about $41 billion. Many Yahoo shareholders, including Bill Miller of Legg Mason, have said that Microsoft must raise its bid to strike a deal.

But raising the $31-per-share offer would cost Microsoft an additional $1.4 billion for every dollar added.

‘’We sent them a letter and said we think that’s a fair offer. There’s nothing that’s gone on other than us stating that we think it’s a fair offer,'’ Bill Gates, Microsoft’s chairman,
told The Associated Press on Monday. ‘’They should take a hard look at it.'’

By contrast, waging a proxy fight to oust Yahoo’s directors is comparatively cheaper. Much of the cost involves the hiring of a proxy solicitor and preparing mailers for Yahoo shareholders.

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