NEW YORK—Citing the inability to agree on a takeover price, Microsoft announced late Saturday evening that it was abandoning its bid to acquire Yahoo.
In a letter to Yahoo's chief executive Jerry Yang, Microsoft's Steve Ballmer formally withdrew the offer. He cited Yahoo's asking price of $53 billion—close to $36 a share—as being untenable: "... 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."
Microsoft had been willing to go up to $47.5 billion ($33 a share). Previously, it had been offering $44.6 billion.
Mr. Ballmer's letter also indicated that Microsoft had dropped its interest in a hostile takeover. It is believed that this course of action was dropped because of Yahoo's threats of using "scorched earth tactics"—a business strategy referring to being willing to sacrifice its core competencies in order to be unattractive to a hostile buyer.
Microsoft seemed particularly irritated by Yahoo's willingness to use Google's Adsense program to replace its inhouse advertising program after Microsoft announced its offer.
Ballmer's letter cited that the plan would "undermine Yahoo!'s own strategy and long-term viability by encouraging advertisers to use Google as opposed to your Panama paid search system. This would also fragment your search advertising and display advertising strategies and the ecosystem surrounding them."
Yahoo's board of directors had rejected Microsoft's latest sweetening of the offer saying that the price was significantly undervalued.
Yahoo's stock prices had dropped to around $19 a share in early February, but shot up to close to $30 a share after Microsoft's initial offer.
Industry analysts predict that Yahoo's share would drop to the levels it was at before the Microsoft announcement, and some predict a possible stockholder lawsuit against Yahoo for not taking advantage of Microsoft's offer.
Tech publication The Register predicted that Microsoft's stock price would go up but that despite its claims to talent and technology, it would continue to fall behind search engine giant Google and has failed to make a dent in the red-hot social networking market which has seen infant sites like Facebook and MySpace dominate.
Talks between Yahoo and Time Warner & AOL were met with cynicism because both companies, once giants in the online world, have recently fallen behind in users, technology, and stock value.
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