Yahoo! Slides on Latest Microsoft Stiff-Arm

Updated from 1:10 p.m. EDT

SAN FRANCISCO - Shares of Yahoo!(YHOO Quote) slumped Monday after the company turned down another chance at a transaction with Microsoft(MSFT Quote).

Both Microsoft and financier Carl Icahn, who has been working for a full-out merger with Microsoft, approached Yahoo! over the weekend with a sweetened offer to buy the company's search business, giving it 24 hours to make a decision.

But once again, Yahoo! turned down the deal.

"It is ludicrous to think that your Board would accept this 'take it or leave it' proposal -- under which we would restructure the Company and hand over to Microsoft Yahoo!'s valuable search business and to Carl Icahn the rest of the Company -- with less than 24 hours to respond," Yahoo! wrote in a letter to shareholders on Monday.

"We remain open to any transaction that delivers full value to our stockholders -- we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor."

Microsoft issued its retort to Yahoo's characterization of the proceedings on Monday afternoon: "At the time Microsoft submitted its enhanced proposal, Microsoft asked that Yahoo! confirm whether it would agree that the enhancements were sufficient to form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets," the company said. "This discussion has been mischaracterized as a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations."

Shares of Yahoo! were down 4.9%, or $1.15, to $22.42 in recent trading. Microsoft was up a penny to $25.26.

In his own letter, Icahn points out that Yahoo! was offered more than 24 hours to respond if the company was willing to put off its annual shareholder meeting on Aug. 1.

He also refutes Yahoo!'s allegations that he is in cahoots with Microsoft to push through a deal.

"That is patently ridiculous," Icahn wrote. "Since Yahoo! failed to consummate a transaction with Microsoft this year, I have spent hours and hours attempting to get the parties together because I believe that it is beneficial to Yahoo! shareholders to have a deal with Microsoft and I have worked hard trying to make it happen."