Microsoft: Yahoo's decision 'unfortunate,' Will press ahead with offer

Microsoft has responded to Yahoo's rejection. The short version: Microsoft is calling Yahoo's bluff and hinted that it may go right to shareholders.

In other words, this negotiation is going about as planned. Yahoo rejects Microsoft. Microsoft is miffed and hints that it could seal a deal without Yahoo's management. Both parties will probably wind up negotiating for a price that saves face for all--say $35 a share.

Here's what Microsoft said in a statement:

It is unfortunate that Yahoo! has not embraced our full and fair proposal to combine our companies. Based on conversations with stakeholders of both companies, we are confident that moving forward promptly to consummate a transaction is in the best interests of all parties.

We are offering shareholders superior value and the opportunity to participate in the upside of the combined company. The combination also offers an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market.

A Microsoft-Yahoo! combination will create a more effective company that would provide greater value and service to our customers. Furthermore, the combination will create a more competitive marketplace by establishing a compelling number two competitor for Internet search and online advertising.

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.

The move isn't terribly surprising. My hunch is Yahoo's management will come to the table. If not Microsoft is well equipped to play hard ball.