Despite rebuff, Microsoft to press on Yahoo bid

Hours after Yahoo officially rejected Microsoft's takeover offer on Monday, calling it too low, Microsoft described Yahoo's response as "unfortunate" and said its own proposal was "full and fair."

The New York Times reported Tuesday Microsoft's statement suggests, at least for now, the company is not willing to increase its price.

Microsoft also indicated anew that it was ready for a fight, repeating earlier statements that it might consider "all necessary steps" to ensure the deal is completed.

Earlier in the day Yahoo said Microsoft's bid "substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments."

Yahoo said its board would "continue evaluating all of its strategic options."

Microsoft initially offered to buy Yahoo for $44.6 billion, or $31 a share, in a mix of cash and stock. After a decline in Microsoft's shares, the value of the offer now stands at less than $29 a share.

Yahoo's board has explored other options, including a search advertising partnership with Google, but has not received any competing acquisition offers, according to people briefed on its situation.

Absent such an offer or a deal that could persuade investors that Yahoo shares will go up significantly, the company's best bargaining chip was the prospect of a friendly deal at a higher price, said Michael Klausner, a Stanford Law School professor who specializes in corporate law and corporate governance.

"Microsoft would much prefer a friendly deal, because it wants to retain good relationships with Yahoo executives and retain employees," he said.

One Yahoo shareholder said the Microsoft and Yahoo statements represented the early stages of an expected negotiation.

"I think Microsoft has made it pretty clear that they are not about to back off here," said Ryan Jacob, portfolio manager for the Jacob Internet Fund, which counts Yahoo among its top holdings. Mr. Jacob, whose fund has about $60 million in assets, said he favored a combination of Yahoo and Microsoft, as it would create a stronger competitor to Google. But he defended Yahoo's initial rejection, saying the board was right to hold out for a higher offer.

In a letter to employees explaining the company's position on Monday, Jerry Yang, Yahoo's chief executive, said they deserved credit for Yahoo's success.

But some Yahoo employees will soon find out that their work is no longer needed. The company said last month that it would lay off about 1,000 employees by mid-February, though some would be allowed to apply for other jobs in the company.