After days of silence following the expired deadline for Yahoo to respond to its takeover proposal, Microsoft is still looking for a way to avoid an expensive and uncertain proxy fight.

Yahoo, meanwhile, is carefully avoiding any move that might force its unwanted suitor's hand and thus scuttle any hope of a higher bid.

In their spare time, they're also still wrestling with the question of whether to merge.

The Wall Street Journal reported Wednesday evening that Microsoft was willing to raise its offer to as much as $33 a share for Yahoo, 6 percent above the $31 it offered originally. Yahoo shareholders are holding out for $35 to $37 a share.

Microsoft and Yahoo officials declined to comment on the report or the status of takeover talks.

The news signals Microsoft chief executive Steve Ballmer's determination to complete the deal without launching a proxy fight to fire Yahoo's board. A hostile takeover could take months and leave both companies bruised—while rekindling ill will toward Microsoft.

Those sentiments have cooled a bit since Microsoft backed away from the aggressive tactics it used in the '80s and '90s.

Microsoft may be holding off on a hostile takeover for now, but it could still resort to one. Microsoft has an alternative slate of directors ready for nomination when Yahoo holds its shareholder meeting.

Yahoo hasn't announced the date for that meeting, but all of its directors will be up for election when it's held.

On Tuesday, Yahoo amended its quarterly report with the Securities and Exchange Commission to include information that normally appears in the annual proxy statement tied to the annual shareholder meeting. That suggests the company wants to wait as late as possible before scheduling an event that could trigger a proxy fight.

Not all of Yahoo's shareholders are hoping for a higher bid. Two pension funds representing Detroit's firefighters, police officers, and other employees, filed a class-action lawsuit against Yahoo, chiding it for "destroying or threatening to destroy shareholder value" by rebuffing Microsoft's initial offer.

Ballmer is facing pressure from his own shareholders, as well as his employees. Both groups might be distressed to learn something revealed in the a hearing for the shareholder lawsuit. Microsoft has set aside $1.5 billion to retain Yahoo employees if the merger goes through, equal to $113,000 per employee.

Still, that's less than Microsoft has set aside in other mergers: When it bought TellMe, it set aside more than $300,000 per employee.

So the stakes are high for shareholders of both companies, none of whom seem happy these days. For other investors with no direct stake, the Microsoft-Yahoo merger has value mostly as a comic spectacle.

"Google is getting much better, and these two companies are stumbling around trying to figure out what to do," said one money manager who asked not to be named. "It's like the third marriage of two B-movie stars. It may not really be what either of them needs, but they can't think of anything better to do."