Microsoft CEO Steve Ballmer, will likely not be pleased with Yahoo's response.
Yahoo calls Ballmer's comments "curious"

After sending a letter, which most in the news industry perceived as threatening, Ballmer sent a clear message to Yahoo's board -- prepare to turn over ownership of the company within three weeks, or prepare to be deposed in a proxy battle.  Yahoo's leadership occasionally seemed open to negotiations, having a joint executive meeting between its executives and Microsoft's last month

However, Yahoo has more often than not resisted Microsoft's current advances, since its initial rejectionMicrosoft refuses to raise its $44.6B USD offer, while Yahoo states that the offer significantly undervalues the company.

All indications are that the companies are headed for a showdown which will put the power and influence of Yahoo's board to the test.  In a response letter to Microsoft CEO Steve Ballmer, chairman Roy Bostock and chief executive Jerry Yang expressed that they are not opposed to a deal, but would not accept such a low offer.

Yahoo's confidence was partially due to its reaffirmation of first-quarter and year-end outlooks, which some worried would be revised lower.  Also, Yahoo cites its three-year financial plan and its new AMP advertising management platform as additional strength.  The company has tried to stay independent and turn around by acquiring advertising companies such as Maven and by releasing new services.

Yahoo's response states that Ballmer's letter "mischaracterizes the nature of our discussions".  The letter's hostile language, Yang and Bostock state is "counterproductive and inconsistent with your stated objective of a friendly transaction."

The pair continues, "Your comment that we have refused to enter into negotiations to conclude an agreement are particularly curious given we have already rejected your initial proposal, nominally $31 per share at the time, for substantially undervaluing Yahoo! and your suggestions in your letter and the media that you are considering lowering the value of your proposal. Moreover, Steve, you personally attended two of these meetings and could have advanced discussions in any way you saw fit."

Yahoo also cites concerns over antitrust issues that might arise from a merger.  As it points out, a merger would include an extensive regulatory review.  Rival Google has suggested that a merger may violate antitrust laws and that it might fight a merger on such basis in court.

Yang and Bostock close the letter on an open but firm note stating, "We are open to all alternatives that maximize stockholder value. To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing."

Despite the pair's offer, unless Microsoft reverses its current policy, it appears that Microsoft will likely prepare to finalize its hostile takeover attempt with a proxy battle within three weeks.

"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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