Yahoo has responded to a three-week deadline issued by Microsoft to accept its $42 billion takeover bid by again rejected the deal, saying it undervalued the company.
In a defiant open letter to Microsoft CEO Steve Ballmer this afternoon, Yahoo said the software giant's threat of a proxy battle was counterproductive and Yahoo would only be open to a better deal.
"Our board's view of your proposal has not changed," said the letter, signed by Yahoo Chairman Roy Bostock and Chief Executive Jerry Yang. "We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders."
Mr Ballmer on Saturday set a three-week deadline for Yahoo to agree to its cash-and-stock offer or risk seeing the bid lowered, citing a deteriorating economy and market for Internet stocks, as well as a decline in Yahoo's share of the web search and advertising business.
Yahoo countered that its business is in good shape and suggested the software giant should look to the value of its own enterprise.
"As a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal," Yahoo's letter said.
When Microsoft first announced its bid on February 1st, the deal valued Yahoo at $31 per share, or $44.6 billion in total, representing a 62 per cent premium to Yahoo's market price.
But a fall in Microsoft's stock price means the proposal now values Yahoo at only $29.62 per share.
Yahoo shares slipped 2.3 per cent to $27.69 in early Nasdaq trading. Microsoft shares rose 22 cents to $29.38, also on Nasdaq.
If the two sides can agree to a deal, it would be the biggest takeover in the high-tech industry. But Yahoo directors - whom Microsoft hopes to convince to negotiate a friendly deal or else face a battle for their jobs at Yahoo's next annual meeting - want more.