The competition between Microsoft and Google took a new turn on February first. Microsoft made a public offer to buy the Internet company Yahoo. Microsoft says the combined companies would be in a better position to compete against Google in the online services market.

This week, Yahoo rejected the offer. Its board of directors said the price undervalued the company. The offer was worth almost forty-five billion dollars in cash and stock, or thirty-one dollars per Yahoo share. Yahoo is said to want forty dollars a share.

Microsoft says it offered a full and fair price. It says moving forward quickly with the deal would be in the best interest of shareholders. Yet since February first, the value of Microsoft’s offer has fallen to twenty-nine dollars a share because of a drop in its stock.

Microsoft thinks it could better compete against Google with Yahoo’s expert knowledge. Microsoft could attempt a hostile takeover. But that is not the way it normally does business, and there is risk of angering Yahoo’s employees.

In the last two weeks, Yahoo has discussed possible combinations with other companies, including the News Corporation, AOL and Google. But Yahoo may not be able to avoid a buyout by Microsoft. The latest reports are that some big Yahoo shareholders would support a deal if Microsoft raised its offer.

The purchase would be the largest ever by the world’s leading software maker. Yet Microsoft has made little progress in its Internet search abilities and in the growing business of online advertising. Google, the leading Internet search company, is the strongest competitor for those advertising dollars.

Microsoft is based in Redmond, Washington. Yahoo and Google are in California’s Silicon Valley.

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