Yahoo has rejected Microsoft's US$44.6 billion cash-and-stock offer, saying the unsolicited proposal substantially undervalues the company. The company said that its management team believed the offer didn't reflect cash flow, earnings potential, or recent investments in its advertising platform.

Further, Yahoo said its board would continue to evaluate other "strategic options."

"We remain committed to pursuing initiatives that maximise value for all stockholders," the statement said.

Microsoft offered $31 a share on 1 February, which was a 62 percent premium over Yahoo's closing price the day before. Since then, Yahoo's stock has risen in value and was trading just above $29 on Monday morning.

Yahoo's executives were rumoured to have been searching for a buyer other than Microsoft. However, no buyer has emerged. Yahoo's latest moves mean that Microsoft may have make a more generous offer, or pursue a hostile takeover.

Microsoft said it believes the acquisition of Yahoo would give it the engineering talent and resources to compete better with Google. While Microsoft and Yahoo have had some success with display advertising, Google has built a fortune on contextual text ads that appear during a search.