Microsoft gave its first hint that it may abandon its $44.6 billion bid for Yahoo, as it approaches the deadline for a threatened proxy battle to oust Yahoo's board.

At a conference in Milan on Wednesday, CEO Steve Ballmer said Microsoft is "prepared to move forward without merging with Yahoo," according to a transcript provided by the company.

Ballmer again repeated that acquiring Yahoo is essential for enabling Microsoft to succeed in the online advertising business, where both companies have been chasing Google.

"Today Google has the lead, there's no doubt about it and I wanna make sure that they have plenty of competition," Ballmer said. "We think the best way to move that forward quickly is to come together with Yahoo. I hope that it works, but if it doesn't we go forward alone."

Ballmer's comments come as Yahoo is facing a Microsoft-imposed deadline of Saturday for accepting the deal. Ballmer warned earlier this month that Microsoft would then try to replace Yahoo's board of directors in order to take the bid directly to Yahoo's shareholders.

Yahoo has maintained it has considered the offer but claims it undervalues the company. Both companies have traded sharp barbs in successive public letters over the deal.

Since Microsoft's offer became public Feb. 1, Yahoo has scrambled to portray itself as a nimble company with potential and improving financial performance.

On Tuesday, Yahoo reported net income of $542 million, or 37 cents per share, for its first quarter of 2008. That's up from $142 million, or 10 cents per share, from the same period a year earlier.

Yahoo has courted other suitors, including Time Warner's AOL, as a possible merger partner in order to fend off Microsoft. Yahoo also struck an agreement with Microsoft's arch nemesis, Google, to display Google's text ads next to Yahoo searches for a trial period of around two weeks..

Further complicating the deal were rumors that Microsoft was in talks with News Corp., owner of the Wall Street Journal and the social networking site MySpace, to make a joint bid for Yahoo.

The IDG News Service is a Network World affiliate.