Microsoft plans to intensify its pursuit of Yahoo this week when it authorizes a proxy fight to oust Yahoo's board, meaning the 19-day old acquisition attempt will soon turn a darker shade of ugly, according to The New York Times.

The proxy fight will cost Microsoft between US$20 million and $30 million, much less than having to significantly up its offer for Yahoo, The Times reported Tuesday morning, quoting anonymous sources.

The aggressive move would be consistent with Microsoft's statements hinting that it's willing to acquire Yahoo via hostile means if necessary. Yahoo's board rejected unanimously Microsoft's offer, calling it too low.

Yahoo declined to comment about The Times' article. Microsoft didn't immediately reply to requests for comment.

On Feb. 1, Microsoft offered to pay $31 per share for half of Yahoo's outstanding shares in cash -- about $22.3 billion -- and 0.9509 of a Microsoft share for the other half. Microsoft's half-cash/half-stock offer to Yahoo was valued at about $44.6 billion at the time it was made; Yahoo's share price was $19.18 at the time.

However, the bid's value has dropped to about $41 billion as the price of Microsoft's stock has fallen from $32.60 at the time the offer was made. It was trading at $28.77 on Tuesday morning. At the same time, Yahoo's stock has surged, erasing the bid's original premium. It was trading at $29.32 on Tuesday morning.

In the proxy fight, Microsoft would hire a proxy solicitor to urge Yahoo investors to kick out board directors, The Times reported, adding that all Yahoo directors are up for nomination this year.

After investing heavily in recent years in its Internet business and failing to achieve its desired goals, Microsoft is now convinced that it must acquire Yahoo in order to compete against common rival Google, especially in search advertising, the largest online advertising market pie, and one that Google dominates.

As of the end of 2007's third quarter, Google had almost 25 percent of the U.S. Internet advertising market, up from almost 21 percent in 2006's third quarter, according to IDC. Meanwhile, Yahoo's share during this period dropped to 11.3 percent from 12.3 percent, while Microsoft's declined to 5.2 percent from 5.8 percent, according to IDC.

In search usage, Google held a commanding 62.4 percent of queries worldwide, followed by Yahoo in a very distant second place with 12.8 percent, according to comScore. Microsoft ranked fourth with 2.9 percent, after Baidu (5.2 percent).

Unquestionably, Yahoo would be a major win for Microsoft in the display ad market. In November, Yahoo ranked first in the U.S. in display ad impressions with a 19 percent share, while Microsoft came in third with 6.7 percent, after Enterprise Corp.'s Fox Interactive (16.3 percent), according to comScore. Google took seventh place with 1 percent.