The Yahoo board may respond to Microsoft’s offer with a request for a higher bid, while telling newspapers a new advertising system in the works will be better than anything else.

A lively weekend for Yahoo news regarding the bid from Microsoft should escalate the staredown between it and the potential acquirer. Microsoft CEO Steve Ballmer told Yahoo’s board in a letter on Saturday to work with them to sign a deal in three weeks, or else.

The “else” should be an aggressive run at Yahoo shareholders to nominate Microsoft’s selected candidates to Yahoo’s board. Once that group is in place, the transition to Microsoft ownership of Yahoo would begin in earnest.

An anticipated response out of Yahoo should have the portal company asking Microsoft to kick in some more cash. A Reuters report said a source believes Yahoo will reject not only the ultimatum, but any suggestion that its business and management are in decline.

Yahoo also resurrected discussions of a new advertising management program they expect to debut later in 2008. The platform, called AMP, provides options to focus an ad campaign down to granular levels of demographics.

The New York Times said Yahoo has been touting the system, first disclosed in February, to newspapers that are part of its advertising consortium.

It appears Yahoo wants AMP to serve as leverage with its shareholders against Microsoft’s offer at current valuation. Much like the Panama ad system delivering its contextual ads, Yahoo thinks AMP presents enough promise as a difference maker that it can help sweeten or stave off Microsoft’s bid.

Yahoo has the problem of past history, promising investors better returns while delays and competition erode those claims. Two years of that left the company open to Microsoft’s bid; investors may not want to chance losing Microsoft’s premium as offered now versus a chance the stock could drop again.