Yahoo has come back with a strong reply to Microsoft’s letter on Sunday – basically stating what we already knew, that Yahoo thought they were being undervalued by the original deal.

In a letter that hints at shareholder discussions, and recent acquisitions, and the declining Microsoft stock, Yahoo said, “We consider your threat to commence an unsolicited offer and proxy contest to displace our independent Board members to be counterproductive and inconsistent with your stated objective of a friendly transaction.”

So Yahoo! aren’t budging. They want more, but I don’t think they’ll get it. And if that’s the case then Microsoft will be taking the case to the shareholders in 3 weeks time.