NEW YORK—U.S. stocks looked set to open lower Monday after Microsoft Corp dropped its bid for Yahoo Inc, clouding the outlook for mergers and acquisitions and sending Yahoo shares down more than 21 percent.
Wall Street's outlook was further dimmed after Warren Buffett said the U.S. economy was in a recession and banks will face more pain. Buffett, chairman and chief executive of investment and insurance company Berkshire Hathaway Inc, made the remarks in a news conference after the company's annual meeting on Saturday.
Yahoo fell to $22.50 before the market's open from a Friday closing price of $28.67 after software maker Microsoft offered to increase its bid to $47.5 billion on Saturday, but that still wasn't enough for the Internet company.
But in a more promising deal, Sprint Nextel's shares rose 10.3 percent to $8.70 after media reports said Deutsche Telekom may purchase the No. 3 U.S. mobile operator.
Microsoft initially offered $31 per share for Yahoo, then $33, but Microsoft withdrew from the talks when Yahoo Chief Executive Jerry Yang dug in for a price of $37 a share.
"Microsoft showing discipline about price may be a sign there's a limit to the M&A activity," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "There may still be activity among companies but only at the right price."
Microsoft shares rose 5.9 percent to $30.96 on Monday.
S&P 500 futures were down 6.4 points, below fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.
Dow Jones industrial average futures fell 48 points, and Nasdaq 100 futures dropped 6.25 points.
Shares of Google Inc, a competitor of both Yahoo and Microsoft, rose on expectations the company could benefit from the failure of the Microsoft-Yahoo talks. Yahoo was likely to push for an advertising partnership with the Web search company, sources familiar with the matter said. Google rose 3.8 percent to $603.50.
Shares of Countrywide Financial fell before the bell on Monday after brokerage Friedman, Billings and Ramsey said Bank of America Corp is likely to renegotiate its deal to buy the mortgage lender or walk away from it.
Countrywide shares dropped 10 percent to $5.40.
An index of the huge U.S. services sector in April is due at 10 a.m. (1400 GMT) from the Institute for Supply Management. Economists in a Reuters survey forecast a PMI reading of 49.1 versus 49.6 in March. A reading below 50 indicates contraction in the sector.
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