As Microsoft cooks up its plan to launch a proxy fight to wrest control of Yahoo, losing a nasty, protracted clash could not only humiliate boss Steve Ballmer but also let Google further cement its place as the unrivaled king of the internet.

While the conventional wisdom holds that Microsoft is favored to win a proxy contest, some experts are warning the software giant not to get too cocky. There's plenty of time—four months to be more precise—for Microsoft's best-laid plans to go awry.

At a minimum, losing the proxy fight would mean that Microsoft would have wasted valuable time, attention, and money, further setting it back as it struggles to compete with Google. Worse, it could ensure that Google will face no "credible" rival for years to come, to use a term favored by Microsoft executives.

But the stakes are even higher than that: With Steve Ballmer, as usual, this is not just business, it's personal. Losing the proxy fight would be a humiliating defeat for Ballmer—a repudiation of his argument that Microsoft's bid represents that the best way to create value for Yahoo shareholders.

"Ballmer has staked his reputation on this bid," said Steven M. Davidoff, an assistant professor of law at Wayne State University and the author of the Deal Professor blog. "By going hostile, Microsoft is attempting to shed its image as a stodgy old tech firm. They have a lot invested in getting this done."

Now that Yahoo has turned down Microsoft's opening bid of $31 per share, and Microsoft is standing pat, for the moment, the two adversaries are locked in a game of billion-dollar chicken.

The logic behind a proxy war stems from Yahoo's poison-pill provision, which prevents a single shareholder from acquiring more than a 15 percent stake in the company. Because Microsoft can't simply buy the company outright, it must nominate a new slate of directors and convince Yahoo shareholders to vote them onto the board. The new board would then dismantle the poison pill, allowing the merger to take place.

To be sure, in the event of a proxy fight, the odds are against Yahoo, most experts, including Davidoff, believe. Yahoo's board is not staggered, meaning that all directors face reelection every year, and directors need only win a plurality of votes.

But Microsoft should not underestimate the challenge that it faces in trying to win over Yahoo shareholders, said Ralph Ward, the publisher of Boardroom Insider.

"Proxy fights against management's recommendation are an uphill battle," said Ward, adding that Microsoft's own shareholders might object to a protracted and nasty fight. If the market is to be believed, Microsoft shareholders are already cool to the merger—or so the company's 15 percent share price drop in recent weeks would suggest.

"There is a lot that can go wrong here," said Davidoff." Once a proxy contest starts, information starts flying around. The case for 'Micro-hoo' may not be a compelling one, and may not convince the shareholders that this is where value lies. And if that's the case, they could lose."

And, of course, there always a possibility that a white knight could emerge once the proxy fight is underway, said Charles Elson, a professor of corporate governance at the University of Delaware, referring to reports that have placed Yahoo in talks with News Corp., Google, and Time Warner's AOL.

"The question is, are they willing to pay more than Microsoft, and is Microsoft willing to pay the premium," said Elson. "And in that case, it becomes a bidding war, which is fine. That's good for investors."

Most experts believe that whether by raising its bid above $31 per share, or by taking the merger directly to Yahoo shareholders in the form of a proxy fight, Microsoft will ultimately prevail. But the software giant shouldn't get too cocky, because losing the fight would be a billion-dollar black eye for the company.

"If Microsoft doesn't win it would be embarrassing for them," said Elson. "But I just don't see it. If they want it badly enough, I think they're going to win."

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See Portfolio.com's full coverage of the Microsoft-Yahoo merger.