On Saturday, Microsoft CEO Steve Ballmer sent a public ultimatum of sorts to Yahoo’s board: accept our offer or we’ll force it on you. Today Yahoo responded publicly to Ballmer’s letter. In essence it says: we’re “not opposed to a transaction” but pay us more.

Here are some excerpts from the Yahoo letter:

[W]e have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders. Our position is simply that any transaction must be at a value that fully reflects the value of Yahoo!, including any strategic benefits to Microsoft, and on terms that provide certainty to our stockholders . . .

Our Board’s view of your proposal has not changed. We continue to believe that your proposal is not in the best interests of Yahoo! and our stockholders. Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo!. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal . . .

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. We are confident that our stockholders understand that our independent Board is best positioned to objectively and knowledgeably evaluate our Company’s alternatives and to maximize value.

This is very much a public game of “he said, she said” and “CYA.” Yahoo must be seen to be putting the interests of shareholders ahead of the emotions or personal interests of individual board members or executives — or they are vulnerable to litigation, which has already commenced. But there are many fair points in Yahoo’s letter about its global reach and brand strength and its various initiatives. It also appears to say that Q1 will be solid for the company:

As you know, we recently reaffirmed our Q1 and full year guidance, which is a testament to our ability to perform in line with our expectations despite the current economic environment.

These dueling quasi-legal missives may not reflect what’s going on actually behind the scenes with the two companies, but it appears to show increasing entrenchment and inflexibility on the surface.

Related Topics: Microsoft & Yahoo Search Deal

About The Author: Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling. See more articles by Greg Sterling