As was predicted, and we reported would happen, Yahoo has formally rejected Microsoft's unsolicited offer to buy the web company.

"The proposal is not in the best interests of Yahoo and our stockholders", Yahoo said in a statement.

"The Board of Directors is continually evaluating all of its strategic options in the context of the rapidly evolving industry environment and we remain committed to pursuing initiatives that maximize value for all stockholders."

Analysts now predict Microsoft will raise its offer by between $5 and $12 billion to try and entice Yahoo to sell, or could become "hostile" and directly approach Yahoo's shareholders.

It was reported from a source near the negotiations yesterday that Yahoo wants $40 per share as opposed to the $31 per share that Microsoft offered.