In a statement released today Microsoft answers the rejection of it’s offer by Yahoo!

”

    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."

So at the moment Yahoo is saying they want $40 a share, not the $31 Microsoft offered, and Microsoft saying that they are not going to increase their offer and threating to turn the takeover into a hostile one.