So much for a quiet weekend ... The Wall Street Journal, citing a person familiar with the situation,  is reporting that the Yahoo board plans to reject Microsoft’s (NSDQ: MSFT) $31 per share offer because it “massively undervalues” Yahoo (NSDQ: YHOO). The source say the board also believes the offer doesn’t account “for the risks Yahoo would be taking by entering into an agreement that might be overturned by regulators” and that the board plans to spell out its position in a Monday letter to Microsoft.

WSJ: “Yahoo’s board believes that Microsoft’s is trying to take advantage of the recent weakness in the company’s share price to “steal” the company. The decision to reject the offer signals that Yahoo’s board is digging in its heels for what could be a long takeover battle. The company is unlikely to consider any offer below $40 per share, the person said.”

Higher bid?: Would Microsoft pay more? Rupert Murdoch got away without boosting his premium offer for Dow Jones (NYSE: NWS) but the case can be made here that Microsoft’s bid for Yahoo—despite its high premium—has room for improvement. If Microsoft would be willing to pay such a premium, this would increase the value of its original cash and stock bid by more than $12 billion.

This doesn’t necessarily mean Yahoo would be averse to a Microsoft takeover completely….it means this could go into a protracted fight, whether hostile or otherwise.

Our full coverage of Microsoft’s bid for Yahoo and subsequent developments are here on our Yahoo page.

Update: The NYT sees WSJ’s “person familiar with” and raises it with “people involved in the discussions”: “The decision to reject the offer was made after a board meeting Friday when directors discussed ways the company might respond to Microsoft’s week-old bid. The board heard presentations from Yahoo’s management and its bankers, people familiar with the discussions said. Several presentations were made illustrating why the company was worth more than the $31 a share Microsoft offered, these people said. ... Lawyers at the meeting discussed the antitrust implications of a tie-up with Google (NSDQ: GOOG), as it would extend that company’s dominance in the search advertising business, these people said. They also discussed how to press Microsoft to increase its bid.”

AP: “By spurning Microsoft, Yahoo risks further alienating shareholders already upset about management missteps that have led to five consecutive quarters of declining profits.The downturn caused Yahoo’s stock price to plummet by more than 40%, erasing about $20 billion in shareholder wealth, in the three months leading up to Microsoft’s bid.”