For starters, it's highly unlikely that Microsoft's initial approach to Yahoo represented its last, best offer. It's just not the way these things work.
Sure, Microsoft's $31 per share bid represents a 62% premium over where Yahoo's stock closed the day prior to the offer. But it's actually less than where YHOO was trading as recently as October.
Indeed, Silicon Alley Insider blogger Henry Blodget recently wrote that Microsoft's offer "would have seemed absurdly low just six months ago."
So Yahoo's board may feel that the company's recent stock swoon is a blip that reflects broader market woes and not Yahoo's true value. Microsoft, though it probably won't say it publicly, might agree with that line of thinking and ultimately will likely be willing to offer more to get its hands on Yahoo.
There's also the chance that a significant Yahoo shareholder -- like Legg Mason -- might step up and pressure Yahoo's board into accepting a deal, in the same way that corporate raider Carl Icahn helped push through Oracle's buyout of BEA Systems.
To boot, Yahoo has very few options. It doesn't have the capital, talent, or presence to compete head on with Google in the online search and advertising business. Barring a tie up with a deep-pocketed ally, it will continue losing ground and relevance.
If Yahoo actually does reject Microsoft's offer, and the Journal report indicates it will, then assume that's merely its initial parry in what could be a drawn out fight -- the outcome of which is going to have a profound impact on the Internet business.