In a defiant open letter to Microsoft Chief Executive Steve Ballmer on Monday, 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."
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 1, the deal valued Yahoo at $31 per share, or $44.6 billion in total, representing a 62 percent 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 1.3 percent to $27.99 in midday Nasdaq trading.
"Yahoo management's position is still that Microsoft's bid is too low and undervalues the company," said Bernstein analyst Charles Di Bona in a note to clients. "Investors are becoming increasingly skeptical and there appears to be growing concern that this view is both unrealistic and self-interested on the part of Yahoo's management."
Microsoft shares rose 12 cents to $29.28 on Nasdaq.
If the two sides can agree to a deal, it would be the biggest takeover in the high-tech industry.
The deal drama has spurred Chinese Internet firm Alibaba Group to speed up plans to buy back a near 40 percent stake owned by Yahoo. Alibaba, parent of Alibaba.com, seeks to calm Beijing's fears that a Microsoft deal would increase foreign influence over China's leading Internet firms.
REGULATORY ISSUES
In their letter, Yang and Bostock charged that Ballmer's letter "mischaracterizes the nature" of their talks so far, calling his assertion that Yahoo had refused to enter into negotiations to conclude an agreement "particularly curious."
"Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit," the letter said.
Directors of Sunnyvale, California-based Yahoo continue to explore alternatives, the company said. Talks on a potential alliance with Time Warner Inc's AOL have intensified, according to a person familiar with the matter.
Yahoo shareholders and analysts say the company's best options are to find an ally to help demonstrate Yahoo is worth more as an independent player, or surprise the market with a strong show in its quarterly results on April 22.
But the consensus on Wall Street is that no "white knight" will emerge to whisk Yahoo away from Microsoft and its proposed cash-and-stock offer currently valued at $42.2 billion.
Yahoo's Yang also criticized Microsoft for not providing it with data that would help the companies identify regulatory issues that might be associated with any merger. Yahoo said it has already provided Microsoft with such details.
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