Yahoo! has rejected Microsoft's $44.6bn (£23bn) takeover bid for the internet giant because it substantially undervalues the company.
The internet company has issued a statement in which it said the board of directors has unanimously concluded that the proposal is not in the best interests of Yahoo! and its stockholders.
"After careful evaluation, the board believes that Microsoft's proposal substantially undervalues Yahoo! including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments," Yahoo! said in a statement.
Yahoo! added that it would continue to evaluate all of its strategic options in the context of the "rapidly evolving industry environment".
It was reported today that Yahoo! has explored the possibility of a merger with Time Warner's AOL, something it has looked at in the past. It is understood partnerships with Google and Disney are also being considered.
Investment banks Goldman, Sachs, Lehman Brothers and Moelis & Company have been appointed by Yahoo! as financial advisers.
It is believed Yahoo! came to its decision at a meeting of its board on Friday night. Despite the rejection, analysts are confident Microsoft will eventually clinch the deal at a higher price.
They believe Yahoo! will either begin negotiating final terms of an amicable sale to Microsoft or draw up plans for a break-up that would hand control of its search engine and a portion of its advertising business to rival Google.
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