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Over the weekend, the Yahoo (NASD:YHOO) board spurned Microsoft's (NASD:MSFT) $31 per share offer, claiming that the offer "massively undervalues" the stock. That's a bold statement, considering the stock had been languishing in the $18 range until the bid. While the stock had traded in the $40's as recently as two years ago, it's only peeked above the $30 range a few times since, generally on takeover rumors, only to slide back again shortly thereafter.

It sounds as though it's mostly an ego-driven decision, as there are no obvious white knights to jump in with the $45-50 billion it would take to do a deal. While Microsoft may be willing to up their offer a few dollars, the negative response from their shareholders to the initial bid suggests that they would be unlikely to go beyond the $34-35 range.

The Times of London reports that Yahoo is reconsidering a possible merger with AOL (NYSE:TWX) and is also looking at potential deals with DIsney. While a Yahoo-AOL combination would be sizable, it's hard to see how that would provide shareholders with the value of the Microsoft offer. Yahoo has had ample time to get its house in order and failed to do that. Now, with an attractive offer on the table for Microsoft, it seems to be willing to dance with anyone to avoid being acquired by Redmond. Seems to me like it's all about ego at this point and not about shareholder value.

UPDATE: Henry Blodget explains why $31 per share does not massively undervalue YHOO. Meanwhile, Yahoo released the full text of the letter it sent to Microsoft. Turns out that we were wrong; rather than "massively undervalue" they say that it "substantially undervalues" the company. I guess the lawyers at Skadden and Munger Tolles felt that substantially was a more appropriate term. Guess that's why they get paid the big bucks.