Microsoft Walks Away From Yahoo

Microsoft announced that it has abandoned its high profile effort to purchase Yahoo after the two companies failed to reach an agreement on a suitable selling price after several days of intense negotiations.

Back on Feb 1, Microsoft went public with a $44.6 billion dollar bid for Yahoo, which would have instantly created a dominant force in the surging online advertising space. Yet despite raising its bid by nearly $5 billion, Microsoft will come away empty handed as Yahoo’s executives were said to be seeking a higher price for the embattled company. And perhaps surprisingly, Microsoft has elected not to go hostile in its acquisition attempt, and is instead electing to simply move on.

“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer,” said Microsoft CEO Steve Ballmer in a statement. “After careful consideration, we believe 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.”

In a response, Yahoo executives insisted that the company was poised to succeed financially and had been reinvigorated as a result of the prolonged negotiations. “I am incredibly proud of the way our team has come together over the last three months,”said Yahoo CEO Jerry Yang in a statement.

“This process has underscored our unique and valuable strategic position. 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 so that we can maximize our potential to the benefit of our shareholders, employees, partners and users.”

So after more that three months, Yahoo and Microsoft are right back where they started, though now each company must assess any damage that’s been done during this high stakes and ultimate fruitless courtship.

It’s likely that Yahoo will deepen its search relationship with Google, which was initiated as part of its attempt to stave off Microsoft’s advances. It’s possible that AOL and Yahoo will once again revisit merger discussions of their own. Or perhaps News Corp will re-emerge as a suitor.

Meanwhile, Microsoft will have to revaluate its own online advertising ambitions. It still trails Google in search share by a wide margin, and there are few obvious short-term moves that can change that dynamic as quickly as the Yahoo purchase would have. In two weeks, the company will hold advance08, its annual gathering of advertiser and agency executives, where it will likely need to start providing some answers.

“We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners,”said Ballmer. “While Yahoo would have accelerated our strategy, I am confident that we can continue to move forward toward our goals.”