A reported tête-à-tête between Microsoft and Yahoo on March 10 at which Microsoft is supposed to have painted its picture of what a combined company would look like apparently hasn’t advanced Microsoft’s suit any – at least not at the price it’s offering to pay.

Yahoo Tuesday offered its rationale for rejecting Microsoft’s $31-a-share bid as undervalued.

According to a three-year plan Yahoo management used to dazzle the company’s board in December before Microsoft went public with its Yahoo lust, Yahoo’s operating cash flow should double from $1.9 billion to $3.7 billion and generate $8.8 billion in revenue in 2010 excluding what it pays in traffic acquisition costs (TAC).

The projected growth includes $1.9 billion in added revenue ex-TAC over the next three years from display/video advertising – outpacing current market projection – and $1.4 billion in added search revenue – a figure that’s in line with market projections.

Only nothing in Yahoo’s performance the last few years supports its hitting these numbers.

Yahoo, which is supposed to want $40 a share if it can’t stay independent, also restated its previous guidance for both its first quarter and the rest of the year.

In the quarter it’s supposed to do $1.68 billion-$1.84 billion in revenue and in the year $7.2 billion-$8 billion.

Yahoo needs to deliver results this quarter to have any hope of negotiating with Microsoft. If it performs like last quarter it’ll just be carrion.

The Wall Street Journal, quoting unidentified sources, says Microsoft won’t raise its offer unless it gets a look at Yahoo’s books.

There is debate on Wall Street over whether it needs to since no viable alternative has presented itself.

According to Yahoo, however, it “provides meaningful strategic value and warrants a significant acquisition premium above its equity value.”

In its analysis it would raise Microsoft’s “sub-scale” profile in Internet search and display, deepen its position in Asia and potentially turn Microsoft’s unprofitable online business into a significantly profitable one.

Google CEO Eric Schmidt, meanwhile, claimed from Beijing that a Microsoft-Yahoo tie-up could break the Internet.

Among a few well-chosen barbs, Reuters says he said, “We would hope that anything they did would be consistent with the openness of the Internet, but I doubt it would be.”

Although there is some debate on Wall Street over whether buying Yahoo’s the best use of Microsoft’s money, financial analysts believe the takeover is inevitable – almost to a man, according to a Reuters poll.