Microsoft walks away from Yahoo

Yahoo's valuation too steep and Google tie-up "undesirable", according to Ballmer

Microsoft has abandoned its bid to acquire Yahoo, claiming that the price Yahoo was holding out for was too high.

Redmond first made the $44.6 billion offer back in February, and recently upped it to $33 per share, which would have added nearly $5 billion to the overall price. But the two sides failed to reach agreement over the price. Yahoo had even entered negotiations with arch-rival Google, to outsource its paid search capabilities to the internet giant – a move designed to thwart Microsoft's advances.

"I am disappointed that Yahoo has not moved towards accepting our offer," wrote Microsoft chief executive Steve Ballmer in an open letter. "I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions."

In his letter, Ballmer explained that the Google outsourcing deal would make a Yahoo acquisition "undesirable", as it would undermine Yahoo's own Panama paid search platform, raise regulatory and legal issues and give Google too much control over setting the rate of paid search terms.

Some market watchers suggested Microsoft has unintentionally dodged a bullet by failing to acquire Yahoo.

"Yahoo plus Microsoft would have been a disaster – the best and the brightest from Yahoo would have gone to Google, the culture clash would have been destructive, it would have put Microsoft back in the sights of the regulators," wrote Forrester chief executive George Colony in a blog posting.

"And Yahoo wouldn't have helped Microsoft with its biggest task at hand – adapting to the emerging executable Internet software model."

Nevertheless, Microsoft's decision may not be the final word on saga. Many market watchers had predicted that Microsoft would walk away, only to return with a new offer at a later date.

Yahoo's stock price has been bolstered in recent months by the Microsoft bid. If its stock were to tank, Microsoft could potentially return with a new bid – and Yahoo's board may find it more difficult to refuse the offer a second time.

Oracle used similar tactics in its pursuit of rival middleware maker BEA Systems.