Microsoft Corp has withdrawn its offer to buy Yahoo after the Internet company turned down its latest offer to raise the price by $5 billion (€3.23 billion pounds) to $47.5 billion (€30.72 billion).
Microsoft's offer was for $33 a share but Yahoo would not lower its demand below $37, Microsoft Chief Executive Steve Ballmer said. The software company initially bid $31 per share for Yahoo more than three months ago.
"We believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal," Ballmer said in a statement released last night.
The talks reached a breaking point after Jerry Yang and David Filo, the co-founders of Sunnyvale-based Yahoo, flew to Seattle in the morning to meet personally with Microsoft Chief Executive Steve Ballmer and Kevin Johnson, who runs the software maker's unprofitable online services division, according to someone familiar with the talks. The person was not authorized to speak publicly and asked not to be identified.
"Clearly a deal is not to be," Ballmer wrote to Yang in a letter sent late yesterday.
Analysts say Yahoo has overplayed its hand and they expect the Web pioneer's shares to fall as much as 30 per cent to $20 levels when Nasdaq trading resumes tomorrow. The stock rose nearly 7 per cent to $28.67 on Friday on hopes of an agreement between Microsoft and Yahoo.
Some Wall Street analysts also have said Microsoft could withdraw its bid as a negotiating strategy aimed at putting pressure on Yahoo to eventually accept a future offer.
Yahoo Chairman Roy Bostock said in a statement the company believed from the beginning that Microsoft's offer undervalued it, and the board was "pleased that so many of our shareholders joined us in expressing that view."
He said Yahoo was pursuing "strategic opportunities" but gave no details.
Yahoo has courted possible deals with Time Warner Inc's AOL Internet division or News Corp's MySpace online social network, and tested a search advertising partnership with Google Inc. A partnership with Google may be announced as early as next week, a person with knowledge of discussions told Reuters
Ballmer cited Yahoo's Google plans as one reason Microsoft was walking away rather than mounting a hostile offer.
"We regard with particular concern your apparent planning to respond to a 'hostile' bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo today," Ballmer said in a letter to Yang, made public yesterday.
"In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us."