I was convinced that Microsoft (NASDAQ: MSFT) would go hostile on Yahoo! (NASDAQ: YHOO). Microsoft is known as a tough player, right? And Yahoo seems to be a good strategic fit.

But of course, Microsoft's CEO, Steve Ballmer, has thrown in the towel on the $31 buyout offer. Apparently, he lobbed $33 per share – but the folks at Yahoo wanted $4 extra.

I can certainly understand why Ballmer doesn't want to overpay. After all, many M&A studies show that this is often deadly for dealmaking.

At the same time, Microsoft had the option of a proxy fight and a direct offer to Yahoo shareholders. However, Ballmer thought such things would be too distracting. But doesn't Microsoft have legions of attorneys and investment bankers?

Another issue is that Yahoo may sign an unattractive deal with Google (NASDAQ: GOOG). While this is possible, I'm sure it would attract lots of heat from shareholders – and more litigation. Besides, it could result in antitrust scrutiny.

Now, if you look at Oracle (NASDAQ: ORCL), you will see that hostile takeovers do work – even though they can be complicated and protracted (especially in the case of PeopleSoft transaction). With a hostile deal, though, there is no question about who is in control, which makes it easier to slash costs.

In other words, I'm a bit perplexed. Is Microsoft getting too cautious? Has it lost its killer instinct?

Now, it's still possible that Microsoft will come back with a hostile bid as Yahoo shares collapse; this is what Oracle did in its pursuit of BEA.

It would certainly be a Machiavellian move and kind of clever. More importantly, it would show the Microsoft hasn't gone soft.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.