Confirming weekend rumors, Yahoo
rejected on Monday Microsoft's
US$44.6 billion cash-and-stock offer, saying the unsolicited proposal substantially
undervalues the company.

In a statement, Yahoo said that its management team, along with financial and
legal advisors, believe the offer doesn't reflect cash flow, earnings potential,
or recent investments in its advertising platform.

Further, Yahoo said its board would continue to evaluate other "strategic
options."

"We remain committed to pursuing initiatives that maximize value for all
stockholders," the statement said.

Microsoft offered $31 per share on Feb. 1, which was a 62 percent premium over
Yahoo's closing price the day before, and was thus characterized at the time
as the proverbial "can't refuse" type. However, since then, Yahoo's
stock has risen in value and was trading just above $29 on Monday morning.

At the same time, Microsoft's stock has fallen since it made the offer, closing
at $28.56 on Friday, down from a close of $32.60 on the day prior to the offer.
Microsoft offered to pay $31 for half of Yahoo's outstanding shares and 0.9509
of a Microsoft share for the other half.

Yahoo's executives were rumored to have been searching for a buyer other than
Microsoft. However, no buyer has emerged. Yahoo's latest moves mean that Microsoft
may have make a more generous offer, or pursue a hostile takeover.

Microsoft said it believes the acquisition of Yahoo would give it the engineering
talent and resources to compete better with Google. While Microsoft and Yahoo
have had some success with display advertising, Google's has built a fortune
on contextual text ads that appear during a search and on third-party Web sites.

With the offer, Microsoft acknowledged it believes that it and Yahoo can't
make a credible run at Google unless they fuse into one organization.

However, skeptics doubt that jointly Microsoft and Yahoo will generate the
magic potion that allows them to break Google's stranglehold on the search engine
advertising market, the largest segment of the online ad market and the source
of Google's riches. Far from making progress, Microsoft and Yahoo have seen
their share of search engine queries shrink, as people's preference for Google
expands.

If Microsoft acquired Yahoo, it would face the perils and traps of integrating
its Internet business with Yahoo, which has 14,000 employees and enough internal
problems of its own. The integration process could be long and painful, slowing
down both companies while Google speeds further ahead. Eliminating redundancies
at the staff, technology and product levels would be a major undertaking.

At the product level, Microsoft and Yahoo have many overlaps in areas like
Webmail, instant messaging, advertiser services, portals, content sites, mobile
services, online media properties and international

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