Yahoo! has revealed that it is facing seven separate shareholder actions over its handling of Microsoft's hostile takeover bid.

In its annual report, Yahoo! also admitted that fending off Microsoft's proposal, which values the company at $45 billion (£22.7 billion), was taking its toll on management and staff.

Yahoo! said that two of the seven lawsuits, several of which have been brought by pension funds, accuse the company of rejecting Microsoft's $31-a-share offer without trying to get a better deal.

One action, filed by two investment funds from Detroit last week, maintains that Yahoo!'s "Just say no to Microsoft" approach has led to "improper defensive measures" and negotiations with other firms that are "destructive to shareholder value".

Meanwhile, a senior Microsoft executive has said that he remains optimistic about the merger, and that the two companies' managers are still in close discussions.

Jean-Philippe Courtois, a senior vice-president for Microsoft, said: "We continue to have a very close dialogue with Yahoo!’s shareholders [and] Yahoo’s management.

"We simply hope for what we think is a very nice merger in terms of economies of scale, research and development, innovation, data centres ... [and] to play a major role in the world," he told the news agency AFP.

Yahoo! has said that Microsoft's offer undervalues the company, and Microsoft has reiterated that its cash-and-shares proposal amounts to a "full and fair" valuation of Yahoo!

Bill Gates, the Microsoft chairman, has not spelt out what he will do next, but one option would be for Microsoft to use its right as a Yahoo! shareholder to nominate its own executives to the Yahoo! board and, in turn, force the company to accept Microsoft's offer.

The deadline to nominate directors to the Yahoo! board this year is March 13.

In its annual report filed with the US Securities and Exchange Commission, Yahoo! suggested that reviewing Microsoft's bid had been "a significant distraction to our management and employees", and that the company may struggle to retain employees and attract new staff.

Four of the seven legal actions detailed in the report were filed in the California Supreme Court, with the remaining three brought in the Court of Chancery in Delaware.

"The plaintiffs in two of the California lawsuits allege that ... the Yahoo! board of directors breached fiduciary duties by, among other things, failing to negotiate a transaction with Microsoft or other potential bidders in the past and present," Yahoo! said in its report.

The Delaware lawsuits, meanwhile, accuse the Yahoo! board of directors of "not acting in the best interests of shareholders" and "seeking to entrench themselves".

It is understood that the Yahoo! board believes that the company is worth at least $40 a share.

Many analysts have said that Microsoft will have to raise its offer to at least $35 to get Yahoo! to negotiate — a suggestion the software giant has not entertained so far.

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