Yahoo's board of directors today rejected Microsoft's buyout offer, saying the $44.6 billion deal 'substantially undervalues' the veteran Internet company.

'After careful evaluation, the board believes that Microsoft's proposal substantially undervalues Yahoo including our global brand, large worldwide audience, significant recent investments in advertising platforms and future growth prospects, free cash flow and earnings potential, as well as our substantial unconsolidated investments,' Yahoo said in a statement.

On February 1, Microsoft unveiled what it called 'a generous' offer to take over Yahoo, in an effort to merge the world's biggest software company with a major Internet player to take on search and advertising juggernaut Google.

Microsoft proposed $31 per share to Yahoo's board, a 62% premium above its closing price the previous day.

Analysts say the wording of the rejection by Yahoo suggests that the company is holding out for a better price, and guarding against potential  lawsuits from shareholders.