Yahoo rejects Microsoft bid

By Daisuke Wakabayashi and Megan Davies

SEATTLE/NEW YORK (Reuters) - Yahoo Inc rejected Microsoft Corp's unsolicited $41.6 billion takeover offer as too low on Monday, forcing the software maker to either sweeten the bid or adopt a hostile approach to clinch a deal.

Microsoft responded by calling its offer fair, but stopped short of saying it would not raise its offer. Without specifying its next move, Microsoft said in a statement it reserves the right "to pursue all necessary steps."

Analysts say Microsoft will probably raise its bid, originally valued at $31 a share, to at least $35, but could be persuaded to go as high as $40. Yahoo's statement did not suggest what price its board was seeking.

"The proposal is not in the best interests of Yahoo! and our stockholders," Chief Executive Jerry Yang wrote in an e-mail to employees on Monday. "We believe Microsoft's proposal substantially undervalues Yahoo!"

Microsoft plans to complete the largest-ever computer technology merger in a bold strategic move aimed at creating a formidable rival to Web search leader Google Inc.

Yahoo said Microsoft's offer did not properly assess its global brand, its audience of some 500 million users worldwide and investments in its online advertising platform.

The offer also does not take into account growth prospects or overseas holdings, which include a stake in Chinese e-commerce firm Alibaba.com, the company said. Yahoo said its board was evaluating all its strategic options.

Redmond, Washington-based Microsoft now must decide whether to sweeten its offer, launch a proxy fight or, the least likely option, withdraw.