Yesterday Yahoo! rejected another Microsoft Bid. This time it was driven by Carl Icahn through Microsoft chief, Steve Ballmer.

It was made on Friday and gave Yahoo! 24 hours to make up its mind.

The offer required the immediate resignation of the Yahoo! board so Roy Bostock, Chairman of Yahoo! said, “While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.”

Carl Icahn is clearly working closely with Microsoft to try and sculpure a deal before Yahoo! are cushioned by their revenues from the Google advertising deal.

As far as Yahoo are concerned however, Microsoft and Icahn’s offer is against the interests of Yahoo! shareholders. (Even though Icahn’s stake now exceeds 4% of Yahoo.)

Bostock also said, “This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!’s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders.”

Officially, Microsoft’s offer to Yahoo! was rejected on the following grounds:

– The revenue guarantees suggested, which are conditional and subject to reduction, are well below the search revenue that the Company is expected to generate on its own and in association with its announced commercial agreement with Google. That agreement alone is estimated to generate $250 to $450 million of incremental cash flow for the first twelve months following implementation, while allowing Yahoo! to remain a principal in paid search;

– The success of the remaining Company is critically dependent on Microsoft’s ability to effectively monetize search;

– Microsoft/Icahn’s proposed Traffic Acquisition Costs rates are below market;

– The proposal calls for Yahoo! to sell its industry-leading algorithmic search business and its related strategic and valuable intellectual property portfolio for no incremental consideration; and

– Many of the components of the headline value that Mr. Icahn and Microsoft put forward, such as the spin-off of the Yahoo!’s Asian assets and the return of cash to stockholders, are steps that could be taken by Yahoo! on its own and the Board continues to evaluate these options.

In a letter to shareholders, Yahoo!’s Roy Bostock (Chairman) and Jerry Yang (CEO) have explained that the Microsoft offer will benefit Microsoft more than it will Yahoo!, and that Carl Icahn’s proposed new board won’t add value to the company.

Like a wounded animal, Yahoo is hoping to find its escape by an alliance with Google instead of a take-over by Microsoft.

In this latest letter, the beseiged company is appealing for shareholders to keep the current board rather than vote for Carl Icahn’s proposed replacements. (See below).

With Google waiting (rather more patiently) in the wings, Yahoo loyalists led by Bostock and Yang, are hoping they can move forwards with Google’s 10 year plan bringing $800 Million per year instead of Microsoft’s $7.73 billion investment and $1bn-per-year deal.

It looks like it will come down to a battle between those who are emotionally involved in the culture and values of Yahoo! against those who are driven by optimizing the financial outcome.

Let me know how you think the Internet would change if there were no more Yahoo! – would you miss it?