In an attempt to calm shareholders excited by two recent rumors suggesting that that a Yahoo/Microsoft link-up was still possible, Yahoo issued a letter defending its decision to break off talks with the software giant. The letter to shareholders didn't refer to a long-expected internal reorganization of the company, however, though that is still expected to happen as soon as this week.

"Our board of directors and management made a great effort--and conducted in-depth negotiations--to elicit a feasible proposal from Microsoft that made strategic and financial sense for Yahoo, but without success," the letter reads. It said that Microsoft's latest offer, which was a "hybrid proposal" that would have seen the software giant purchase Yahoo Search and invest in the rest of the company, was too restrictive. It would have prevented Yahoo from pursuing search deals with other companies and would have given Microsoft veto power over any proposed sale of the company.

"The Google \[search outsourcing\] agreement is far better than Microsoft's search-only hybrid proposal," the letter notes. "That's why we moved forward with it." This deal, however, is in a months-long limbo period while antitrust officials investigate monopoly and competitive issues.

The letter also addresses billionaire investor Carl Icahn and his attempts to replace the Yahoo board with one more amenable to a Microsoft sale. "You can choose to vote for a slate of nominees with no articulated plan for the future of Yahoo," the letter reads. "Or you can choose to vote for your existing board of directors which has the independence, experience, knowledge and commitment to navigate the company through the rapidly-changing Internet environment, execute on our strategic objectives and deliver value for Yahoo and its stockholders."

"It is time for Yahoo to turn its undivided attention to implementing its key strategies, and we therefore urge you to reject Mr. Icahn's slate and his ill-defined agenda," the letter adds.