April 23 (Bloomberg) -- Microsoft Corp. Chief Executive Officer Steve Ballmer said he doesn't plan to raise his $44.6 billion offer for Yahoo! Inc., setting the stage for a fight to control the board that may start this weekend.

``We are offering a lot of money,'' Ballmer said today at a conference in Milan. ``If Yahoo's shareholders like it, that's great. We are prepared to go forward without a merger.'' On April 5, he threatened to oust Yahoo's board and consider lowering the bid if the directors failed to negotiate within three weeks.

Yahoo yesterday reported its first quarterly profit increase in more than two years. CEO Jerry Yang has repeatedly spurned the $31-a-share bid, saying Yahoo's financial performance and No. 2 rank in the U.S. Internet search market merit a higher price from Ballmer, who leads the world's biggest software maker.

``He's playing hardball, and I don't think he can win,'' said Larry Haverty, an associate portfolio manager at Gamco Investors Inc. in Rye, New York. ``Microsoft is doing very poorly in these businesses; they have to have Yahoo.'' His firm, which had about $31 billion in assets under management as of Dec. 31, owns shares in Microsoft and Yahoo.

Microsoft rose $1.20, or 4 percent, to $31.45 in Nasdaq Stock Market trading at 4 p.m. New York time. That values Microsoft's half-cash, half-stock bid at about $30.45 a share. Yahoo fell 46 cents, or 1.6 percent, to $28.08.

Yahoo posted a first-quarter profit of $542.2 million, or 37 cents a share. That included a $401 million gain from a stake in Alibaba.com Ltd., a Chinese company that had an initial public offering. Sales climbed 14 percent, while larger rival Google Inc. posted growth of 46 percent for the same period.

`Time Is Money'

Less than a month ago, Ballmer said Yahoo's business had shown signs of deterioration alongside the U.S. economy, indicating that Microsoft doesn't value Yahoo as highly as it did at the time of the original offer.

``Time is money, we've made that clear,'' Ballmer said of the deadline today in a news conference following his speech at the conference.

Yahoo President Sue Decker said the company is seeing a decline in search-related and graphical banner ads from finance and travel companies amid the economic slump. Growth in spending by companies in other industries such as technology and telecommunications countered those losses, she said.

Ballmer may have to go through with nominating an alternative board slate to get Yahoo to negotiate, RCM Capital Management general manager Walter Price said. San Francisco- based Price helps manage about $3 billion, including Microsoft and Yahoo stock. Ballmer threatened to start a proxy fight and possibly cut the bid if Yahoo failed to agree to terms by April 26.

Yahoo's Stance

``I don't think Yahoo management can win a proxy fight unless they come up with a viable alternative to convince shareholders that the price will be higher in six months or a year,'' Price said in an interview. ``There's not someone else out there with $40 billion, and I think a lot of the stock has moved into the hands of arbitrageurs that would be happy to get $31.''

Microsoft may still decide to raise its bid following Yahoo's better-than-expected first-quarter earnings, Jefferies & Co. analyst Youssef Squali said in a report today. The current offer doesn't reflect as much as $2 billion in cost savings from a combination, he said.

The Sunnyvale, California-based company is also the only one that can help Microsoft take market share from No. 1 search engine Google, said New York-based Squali, who advises investors to hold onto Yahoo stock. Gamco's Haverty said he expects Microsoft to raise the bid to avoid a proxy fight, and values Yahoo at about $35 a share.

Yang, who has sought alternatives to the bid that would appeal to shareholders, has said he won't negotiate at the current price. Potential partners include Time Warner Inc.'s AOL unit, people familiar with the situation said this month.

To contact the reporters on this story: Sara Gay Forden in Milan at sforden@bloomberg.net; Alex Armitage in London at aarmitage@bloomberg.net

Last Updated: April 23, 2008 16:28 EDT