In response to Microsoft’s bid to purchase Yahoo at $31 per share, Yahoo’s board of directors met on Friday and, today, issued a press release with the results of the meeting:

SUNNYVALE, Calif., Feb 11, 2008 (BUSINESS WIRE) — Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, today said the Yahoo! Board of Directors has carefully reviewed Microsoft’s unsolicited proposal with Yahoo!’s management team and financial and legal advisors and has unanimously concluded that the proposal is not in the best interests of Yahoo! and our stockholders.

It goes on to say that they believe Microsoft’s offer "substantially undervalues Yahoo!".

They might have a point, especially considering the "fun fact" at the top of that press release:

If Yahoo! users joined hands to form a chain, they would wrap around Earth eleven times.

I have no way of knowing if that’s true, but I think it is a safe bet that, if so, Microsoft’s offer is indeed too small.

It is reported that Yahoo will not even consider an offer from Microsoft unless it offers at least another $12 per share. The current deal would have paid shareholders half in cash, half in Microsoft stock. One Yahoo source said: "All they [Microsoft] are trying to do is pick off the company on the cheap. They’re trying to steal it. And the board is not going to let that happen. They have gone for a valuation that reflects the five-year low of the stock.”

This isn’t over, though. Yahoo is reported to be restarting talks with AOL on a possible merger in an effort to ward off Microsoft. For it’s part, Microsoft could begin to play nasty by going straight to Yahoo shareholders. Also, being that Microsoft is itself a shareholder in Yahoo, it could also move to oust the current board of directors at Yahoo and replace key executives with people of Microsoft’s choosing. Such a move would need to be voted on by Yahoo shareholders, but dealing directly with them, Microsoft would definitely make this hostile.

Don’t yet count this one out. MicroHoo may indeed still be coming. Rejecting a first offer is just business.

UPDATE 6:07 PM

Microsoft has responded to Yahoo’s decline:

The Yahoo! response does not change our belief in the strategic and financial merits of our proposal. As we have said previously, Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.

This is code language for: "This ain’t over, buster. We’re Microsoft. Nobody says no to us. Bitch."