Microsoft Corp., the world’s largest maker of software, late last week sent another letter to Yahoo!’s board of directors in a final attempt to persuade them to sell the Internet company to Microsoft. But while Microsoft gave a rather clear ultimatum to Yahoo!’s board of directors, the Internet giant was quick to deny the possibilities to become part of the software giant.

“[…] We believe now is the time for our respective companies to authorize teams to sit down and negotiate a definitive agreement on a combination of our companies […]. If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo! board,” the letter by Microsoft to Yahoo! reads.

In addition, Microsoft also indicated that the proposal to acquire the company for $42 billion at 62% premium was a good offering and became an even better one in the recent weeks after the stock price of Yahoo! dropped. Moreover, if Yahoo! does not agree to merge with Microsoft on existing conditions, the software giant promised to make offerings directly to shareholders, which may ultimately reduce the overall premium.

“The substantial premium reflected in our initial proposal anticipated a friendly transaction with you. If we are forced to take an offer directly to your shareholders, that action will have an undesirable impact on the value of your company from our perspective which will be reflected in the terms of our proposal,” Microsoft indicated in its letter.

Nevertheless, Yahoo! continues to believe that the offering of Microsoft undervalues the Internet company and thus will not negotiate on the given terms.

“We continue to believe that your proposal is not in the best interests of Yahoo! and our stockholders. Contrary to statements in your letter, stockholders representing a significant portion of our outstanding shares have indicated to us that your proposal substantially undervalues Yahoo!. Furthermore, as a result of the decrease in your own stock price, the value of your proposal today is significantly lower than it was when you made your initial proposal,” a letter by Yahoo! reads.

The chairman of Microsoft Corp., Bill Gates, said at a news-conference that the world’s largest maker of software is on-track to release its next-generation operating system (OS) sometime in 2009. Certain indirect claims of Microsoft confirm this timeframe, which was already once named as the deadline for what is known as Windows 7, but then the company announced different schedules for code-named Vienna OS.

“Sometime in the next year or so we will have a new version [of Windows operating system. I’m super-enthused about what it will do in lots of ways,” said Bill Gates at a conference of Inter-American Development Bank, reports cnetnews.com

Also on Thursday Microsoft said that it would continue to offer its Windows XP Home operating system for low cost computers until mid-2010 or “one year after general availability of the next version of Windows”. The claim implies that Microsoft does plan to release its Windows 7 in mid-2009, a little more than a year from now.