Yahoo! Officially Rebuffs Microsoft; Is an AOL Deal in the Works?

As we indicated over the weekend, the Yahoo! Board of Directors has decided to reject the unsolicited Microsoft bid for the company. And the reason given, as was reported last weekend, was undervaluation. In a press release, Yahoo! said:

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. The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders.

It should also be noted that most of Silicon Valley still thinks of Microsoft as the 800-pound gorilla, and wants nothing to do with it. This definitely includes Yahoo! CEO Jerry Yang.

Meanwhile, however, rumor has it that the "strategic options" Yahoo! is examining includes a re-opening of talks with AOL. You may recall that a prior merger attempt between Yahoo! and Time-Warner's AOL division failed because of - what else - monetary differences. With Microsoft looming, will talks be spurred? After all, last week T-W CEO Jeff Bewkes said they were going to spin off AOL.

For Yahoo!, an advantage may be that AOL doesn't have its own search index, but licenses Google's. An AOL deal would likely see Yahoo keep its search and search ad operations.

More to come; Microsoft doesn't give up that easily.