INTERNET search engine Yahoo! is set to snub software giant Microsoft's 44.6 billion US dollar (£22.4 billion) approach for the firm, it was reported today.

Microsoft made the surprise bid 10 days ago in a bid to challenge the dominance of internet search engine giant Google.

But Yahoo!'s board is ready to reject the 31 US dollar a share (£15.92) offer as "massively undervaluing" the business, the Wall Street Journal reported.

Yahoo! plans to write to its bid suitor tomorrow rejecting the merger proposals as trying to buy the company on the cheap, sources quoted by the newspaper said.

The board's executives are reportedly holding out for around 40 US dollars (£20.55) a share - double its price in January - adding around 12 billion US dollars (£6.2 billion) to the value of Microsoft's offer.

Yahoo! has been considering other options which would maintain the company's independence such as an advertising partnership with Google, according to the WSJ. Both Microsoft and Yahoo were unavailable for comment on the story.

Microsoft's unexpected approach comes a year after the two companies held talks over a possible tie-up to challenge Google, although Yahoo! rejected the proposals at the time because it hoped to reap benefits from an overhaul of the business.

Competitive

But Microsoft warned on unveiling its offer that the "competitive situation has not improved" and believes a merger is the "only alternative" to challenging Google's dominance.

The software giant hopes to offer a credible alternative to Google through the tie-up, offering greater choice to advertisers, increasing research and development spending and stripping out overhead costs.

It has also hinted at a hostile bid by reserving the right "to pursue all necessary steps" to win over the firm's shareholders if the deal is opposed.

In January Yahoo! reported a 23% fall in fourth-quarter profits. Jerry Yang, the company's co-founder and chief executive, said the firm would "continue to face headwinds" during this year.

According to data from US research firm ComScore, Google accounted for more than 58% of internet searches in the US in December, with Yahoo! a distant second on 22.9%. Microsoft's sites were used in almost 10% of searches.