Yahoo has publicly knocked back the offer by Microsoft. The tone of their rebuttal suggests that they may now be resigned to an eventual MS buyout and are now just looking for the best price, but I still wonder how some of these executives come up with their valuations of their companies worth. The current Microsoft offer rates Yahoo at a P/E ratio of around 60. To put this in context this means that the profit to Microsoft from the Yahoo part of the business would need to grow at a rate of over 50% for 10-15 years to justify the price. In this context it is hard to rationalise why the Yahoo board mught be claiming that the offer undervalues their company.
Even with their currently inflated share price, the Microsoft offer is still greater than their market capatilisation. Technically this means that they are not being underpriced even given the most optimistic valuation of their company. This is a typical thinking that many sellers seem to use when they have an emotional attachement. If you want to get the benefits of a capital market you need to accept the rules, one of which is that your company is worth what someone is willing to pay.