Microsoft bristles at Yahoo's rejection of $44.6 billion bid

— -- Microsoft on Monday responded testily to Yahoo's rejection of its buyout offer. A few hours after Yahoo's board of directors formally rebuffed Microsoft's $44.6 billion takeover bid, the software giant issued a sharply worded retort:

"It is unfortunate that Yahoo has not embraced our full and fair proposal to combine our companies."

The statement made no hint at what Microsoft will do next. It has an unsolicited offer of $31 per share on the table. Both sides can ill afford to see the deal fall apart.

Microsoft's next likely move is to extend a "tender offer" directly to shareholders, putting pressure on Yahoo's directors to negotiate price, says Sid Parakh, tech stocks analyst at McAdams Wright Ragen.

Yahoo hinted it could be swayed to accept a higher offer, but it did not mention a price. "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 said in a statement.

Many analysts, including Roger Kay, president of market researcher Endpoint Technologies Associates, expect Microsoft to increase its bid to $35 to $40 per share, raising the ultimate price for Yahoo by $5 billion to $12 billion.

A higher bid could hurt Microsoft's stock price, which has tumbled 14% since the bid was made public Feb. 1. Investors are concerned that a takeover of the scuffling Yahoo could act as an anchor on Microsoft's business, analysts say.

"To finance a $40 bid, Microsoft risks emptying its own well," Kay says.

Microsoft investors are bracing for a protracted struggle. Even if a deal is struck soon, it will take many months for the merger to clear reviews by U.S. and European antitrust regulators, and even longer for Microsoft to deal with the complexities of blending companies with similar Internet services.

The software giant would not likely see "meaningful benefits" for "12-24 months or longer," RBC Capital Markets analyst Robert Breza wrote in a research note. Meanwhile, Google googwill "refine its strategy and should have an opportune period" to extend its dominance of Internet advertising, he wrote.

Should Microsoft need to resort to a more extreme tactic, it could seek to oust Yahoo's board at its next election, in March.

Yahoo could counter Microsoft by executing a strategy known as a "poison pill," in which it would issue more company shares to make a buyout too pricey for Microsoft.

Short of that, Yahoo might explore an advertising partnership with Google to goose its revenue and remain independent. But that could present an even bigger antitrust hurdle, says Carl Tobias, a law professor at the University of Richmond in Virginia.