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In rejecting Microsoft's buyout bid as too low, Yahoo leaves the door open for negotiations.

Now that Yahoo Inc. has formally rejected Microsoft Corp.'s $44.6-billion buyout bid, the question swirling around the biggest tech industry merger ever proposed is this:

Just how much is Microsoft willing to pay?

Even though Yahoo executives turned down Microsoft's offer of $31 a share, saying it "substantially undervalues" the company, they didn't reject the idea of a merger, and Microsoft gave no indication it was going away.

"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," Microsoft said in a statement Monday after receiving Yahoo's rejection letter.

Microsoft said it reserves the right to "pursue all necessary steps" in its buyout bid. Though it didn't give specifics, that could mean continuing to pressure big shareholders who could influence Yahoo's board of directors, taking a tender offer directly to shareholders, or simply making a better offer.

"The Yahoo response does not change our belief in the strategic and financial merits of our proposal," Microsoft said.

In its letter rejecting the Jan. 31 offer, Yahoo clearly left the door open for negotiations, something it didn't do a year ago when Microsoft made a similar unsolicited bid.

Yahoo's board said it is "continually evaluating all of its strategic options" and "remain(s) committed to pursuing initiatives that maximize value for all stockholders."

Outside observers say that will almost undoubtedly prompt Microsoft to raise its bid in coming days.

Jordan Rohan, an analyst with RBC Capital Markets Corp., said in a research note that he expects Microsoft to come up with an offer of between $31 and $40 a share. If so, Rohan wrote, it might be impossible for Yahoo's board to turn the company down without facing lawsuits by shareholders.

Adding to the pressure on Yahoo executives, a group of investors led by a shareholder activist in Florida announced it is more than willing to sell its shares to Microsoft, or anybody else that comes up with a better bid.

"We are ready to tender those shares to whoever steps forward and makes the best offer," said Eric Jackson, who runs a Naples firm called Ironfire Capital. Jackson said he thinks if Yahoo doesn't take a buyout bid from Microsoft or some other suitor, Yahoo's shares will sink back to its recent price of $17 a share - or lower.

Jackson claims to own only 96 Yahoo shares, but claims to have the backing of holders of some 2.2-million shares.

That's still just a fraction of the 1.39-billion outstanding shares of Yahoo stock, but Jackson has already proven he can influence Yahoo's board. Last year, he led a campaign that helped push Yahoo CEO Terry Semel out of the company's top job.

"One thing we found last year was that ... it's not so much the quantity of the shares but the quality of the argument," Jackson said in a telephone interview.

On Monday, Yahoo's stock closed at $29.87, up 67 cents. Microsoft fell 35 cents a share to $28.21.

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