SAN FRANCISCO -- With its quest for Yahoo yhoo abruptly over, Microsoft msft must now pursue a Plan B to compete with Google for Internet advertising dollars.
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.
The breakdown in the talks sent Yahoo's shares reeling and intensify anxiety among investors about Yahoo's management, which has been criticized for moving indecisively as it, too, struggles to compete with Google goog.
Should Yahoo's stock take a beating, it is not out of the question for Microsoft to take another crack at acquiring it — perhaps with a lower bid, says Roger Kay, president of Endpoint Technologies Associates.
But two of the sources close to Microsoft told USA TODAY on Sunday that the software giant is through pursuing Yahoo.
Shortly before Microsoft's deadline, Yahoo entered into a search advertising partnership with Google. It also explored a merger with Time Warner's AOL.
A closer look at how the "no deal" went down:
A rush of last-minute talks between heads of the companies preceded Microsoft's announcement to withdraw its bid, say people familiar with the negotiations who are not authorized to speak publicly about them.
In the last meeting during a frenetic week, Yang and fellow Yahoo co-founder David Filo flew to Seattle to face Ballmer and Kevin Johnson, president of Microsoft's platform and services division, on Saturday morning.
Microsoft, which had indicated the previous night that it would raise its offer to $33 a share from $31, did so. Yang and Filo said their board wanted $37. The result: No deal.
The decision capped a week in which executives from both companies tried to hammer out a deal, according to the sources, who outlined the final days of Microsoft's takeover bid. How the past several weeks played out:
•On April 15, Microsoft and Yahoo executives met in Portland, Ore., to discuss the parameters of a blockbuster deal after weeks of jockeying.
At the time, Yahoo said it did not have an asking price.
•On April 18, bankers from both companies held a conference call. Yahoo bankers said it would take an offer of $40 a share or more to consummate a deal.
•On April 26, Microsoft's deadline to Yahoo to reach a deal or face a hostile takeover passed without incident.
•The following Tuesday, April 29, Yang and Yahoo Chairman Roy Bostock called Ballmer twice, urging him not to follow through on his threat to wage a prolonged proxy fight.
•On April 30, Ballmer flew to Silicon Valley for a meeting with Yang near Yahoo's headquarters. At the encounter, Yang indicated to Ballmer that Yahoo could be acquired for $38 a share.
•News of the talks heightened Friday with speculation that Microsoft would raise its bid or walk away. Microsoft told Yahoo that night it could go as high as $33 a share.
•Yang and Filo flew to Seattle on Saturday morning to meet Ballmer and Johnson. During a 4½-hour meeting, they said the board's price tag was $37 a share.
Filo and Yang flew back to California.
Ballmer later called Yang to inform him that Microsoft was scotching its offer and followed up with the letter that was released to the press.
Yahoo later released a statement, with Yang saying, "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history."