Microsoft has abandoned its bid to buy Yahoo! after the two companies failed to agree on a sale price. Microsoft had increased its original $44.6 billion (£22.5 billion, $29.4 per share) offer to $47.5 billion ($33 per share), but Yahoo! was holding out for $53 billion ($37 per share), and in any case, had been extremely reluctant to enter into any deal with Microsoft. The news comes just a couple of days after rumours suggested that the two sides were close to agreeing a deal somewhere between these two valuations.
Since it launched its bid on 31 January, however, Microsoft had grown increasingly exasperated by Yahoos refusal to play ball. On 5 April, Microsoft threatened Yahoo! with a proxy battle to remove the existing Yahoo! board if it didnt agree to a deal by 26 April, just over a week ago. Microsoft was also unhappy with Yahoos plan to respond to what it saw as a hostile bid for the company by seeking to outsource key paid Internet search terms offered by Yahoo! to Google. Such a move, Microsoft believed, would fundamentally undermine Yahoos own strategy and long-term viability by encouraging advertisers to use Google as opposed to thePanama paid search system. The move would also fragment Yahoos search advertising and display advertising strategies and the ecosystem surrounding them, said Microsoft.
Microsoft Chief Executive Steve Ballmer formally withdrew the offer in a letter to Yahoo chief executive Jerry Yang. In the letter, a clearly disappointed Ballmer says:
“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. After careful consideration, 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.” 
The letter concludes:
“I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table. But clearly a deal is not to be.”
The news may not be the end of Microsofts interest in Yahoo! however. With Jang already coming in for plenty of criticism on the blogoshpere for rejecting the Microsoft approach, all eyes now will be on the Yahoo! share price, currently $28.67. With many analysts predicting that it could drop in to the mid-teens if Yahoos turnaround efforts fail, the companys days as a takeover target may not be over yet.
