Mumbai: Microsoft is set to raise the pressure on Yahoo even as the Sunnyvale search firm's board of directors officially rejected its $44.6 billion take-over offer.

A rejection of Microsoft's bid for Yahoo is also expected to spur litigation in courts, analysts feel.

Yahoo's decision to reject the offer was earlier seen as an effort to get Microsoft to raise its $44.6 billion ($31 a share) proposal or as buying time for other options.

Yahoo's stock, which rose 2 per cent in regular trading to close at $29.87, up 67 cents, is still below the Microsoft offer.

An outright rejection of the offer is likely to invite shareholder lawsuits in the absence of other bidders offering anything close to this price, analysts said.

Microsoft also stands ready for a long battle and it may use all take-over tactics, including nominating its supporters to Yahoo's board of directors or making its offer directly to Yahoo's shareholders.

Yahoo, which began laying off 1,000 employees, is still looking for an alternative that would enable it to stay independent. It is also considering outsourcing advertising to Google to making its own bid for AOL.

While Yahoo said Microsoft's proposal was "not in the best interests of Yahoo shareholders" and "substantially undervalues" its assets, analysts expect a deal at a price between $31 and $35 a Yahoo share.
 
Investors had been waiting more than two years for Yahoo to install new advertising software that was supposed to help the company close the gap with Google, which earns as much as 50 per cent more for search advertising.

Analysts feel that Microsoft can still raise the offer as the current offer does not take into account Yahoo's valuable stakes in the Asian internet companies - Yahoo Japan, Alibaba and Gmarket.

The market value of Yahoo's investments in these companies is more than $13 billion, according to Yahoo's advisors Lehman Brothers.