Microsoft drops pursuit of Yahoo, looks ahead

SAN FRANCISCO -- Microsoft dropped its blockbuster bid to acquire Yahoo late Saturday, after the two tech titans could not agree on a price.

The software giant withdrew its offer hours after it sweetened the bid to $33 a share, or about $47.5 billion, at a meeting in Seattle between Microsoft CEO Steve Ballmer and Yahoo CEO Jerry Yang, said people with knowledge of the talks who asked not to be named because of the sensitivity of the discussions. Yahoo's board insisted on $37 a share, the sources said.

Microsoft's decision to walk away culminated a whirlwind, three-month courtship that it initiated on Jan. 31 with a $31-a-share unsolicited bid.

In a statement Saturday, Ballmer said Microsoft would continue to pursue other online efforts.

Those options could include acquisitions and partnerships.

"Microsoft should look creatively at how to invest $40 billion-plus instead of looking at an entity that may have passed its prime," says N. Venkat Venkatraman, management professor at Boston University.

Yahoo repeatedly rejected Microsoft's offer, saying it undervalued the company. Microsoft at times vowed to lower its bid and threatened to launch a proxy fight to oust Yahoo's 10-member board, including Yang, if Yahoo didn't accept the offer by April 26. Yahoo ignored the deadline.

Yet in a letter to Yang that Microsoft released Saturday, Ballmer said it did not make sense for Microsoft to pursue a proxy fight, which could take months.

In a statement Saturday night, Yang said, "This process has underscored our unique and valuable strategic position." Heartening Yahoo were better-than-expected first-quarter results last month.

Microsoft's withdrawal was as abrupt as its audacious takeover bid. The retreat could have lasting implications for Ballmer — who has been questioned by some investors and analysts for attempting such a landscape-shifting deal — and Yang, who is trying to right Yahoo after a rough financial patch.