Chief Executive Jerry Yang told employees in an e-mail that no decision has been made about Microsoft's bid to buy the company for $44.6 billion.
According to the copy of the email that was included in a filing with the U.S. Securities and Exchange Commission, the Yahoo board is evaluating various potential strategic alternatives and has hired "top advisors" to assist it through the process.
The e-mail, addressed to "yahoos" and written in lower case letters, said: "as we've said, no decision has been made about microsoft's proposal. our board is thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape."
Meanwhile, BMO Capital Markets downgraded its rating on Yahoo shares to market perform from outperform, citing the value of Yahoo's stock.
BMO said it expects Microsoft's unsolicited $31 a share bid to go through. However, any meaningful further gains in Yahoo's stock would depend on rival "white knight" counteroffers, but BMO doesn't see any expect to see any emerge.
Last week, Microsoft offered to buy Yahoo for $44.6 billion in cash and stock. The offer was a 62 percent premium on Yahoo's closing price on January 31.
--CNBC.com has business relationships with both Yahoo and Microsoft.