SAN FRANCISCO -- Running out of time and options, Yahoo Inc. again rebuffed Microsoft Corp.'s buyout offer yesterday and continued to seek refuge in the arms of Time Warner Inc.
Yahoo, which faces a takeover fight if it does not reach a deal with Microsoft by April 26, is trying to sell a substantial minority stake to Time Warner, according to people familiar with the talks.
The deal being discussed would combine Yahoo with Time Warner's beleaguered AOL Internet unit. Time Warner's stake, if committed to support Yahoo's management against Microsoft, would make it harder for the software giant to win a threatened proxy fight.
Yahoo and Time Warner declined to comment on the talks. Several analysts said they were skeptical that Yahoo could pull a last-minute rabbit out of its hat.
"Yahoo is going to be sold to Microsoft," said technology investment banker Ken Marlin.
In a letter sent to Yahoo's board Saturday, Microsoft said it would seek to elect its own slate of directors in a proxy fight if Yahoo does not come to terms within three weeks. If it does, Microsoft said, it will probably lower its price to reflect slowdowns in the general economy and Yahoo's Web business.
Yesterday, Yahoo dismissed the argument that its business was deteriorating and again called Microsoft's roughly $40 billion bid too low. It was the second time that Yahoo had spurned the offer since Microsoft extended it Jan. 31.
But in their reply, Yahoo Chief Executive Officer Jerry Yang and Chairman Roy Bostock wrote that they remained open to joining the software giant if nothing better comes along.
"We are open to all alternatives that maximize stockholder value," they wrote to Microsoft CEO Steven A. Ballmer. "To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo on a stand-alone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing."
Yang and Bostock also said Microsoft was being "unconstructive," and said the tone of Ballmer's letter undermined the "friendly" approach that he claimed to be taking.
They also said that stockholders representing a significant portion of outstanding shares had indicated that the Microsoft proposal "substantially undervalues" Yahoo.
"We continue to believe that your proposal is not in the best interests of Yahoo and our stockholders," Yahoo officials wrote.
Executives from the two companies have met twice since Microsoft made its offer public but have not engaged in formal negotiations. A drop in the price of Microsoft shares has reduced the offer to about $29 a share from its initial value of $31 a share. When made, the offer gave Yahoo a 62 percent premium over the most recent closing stock price.
Yang and Bostock rejected Ballmer's view that Yahoo has refused to negotiate, and noted that Ballmer attended both meetings of the company's executives.
A Microsoft spokesman did not respond to requests for comment.
Joseph Menn and Jessica Guynn write for the Los Angeles Times.