Microsoft Abandons Quest for Yahoo!

NEW YORK “I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!.”

That was the gist of a lengthy letter sent by Microsoft CEO Steve Ballmer on Saturday to Yahoo! CEO Jerry Yang.

Microsoft had been trying to purchase Yahoo! since Jan. 31, first offering $31 per share, though not responding publicly as Microsoft’s own stock sank, thus lowering the half-stock, half-cash bid by almost $2 a share.

But in Ballmer’s letter, he revealed Microsoft’s latest bid was $33 a share while Yahoo! was holding out for $37 per share.

Microsoft’s $33 offer was about a 70 percent premium to where Yahoo! shares were trading prior to Jan. 31, valuing Yahoo at $47.5 billion. Yahoo! was seeking about $52.5 billion.

News of the rescinded offer is expected to crush Yahoo! shares on Monday, given that there are no other known bidders for the company. Some experts also predict shareholder lawsuits will be filed against Yahoo!.

Ballmer also made it clear that he would not attempt a hostile takeover because he fears Yahoo! would take steps to make the company less desirable to Microsoft, as it has already done with a test partnership with Google, a primary Microsoft rival.

In fact, Ballmer spent considerable effort laying out his particular concerns about the Yahoo!-Google initiative, which he refers to as “the outsourcing to Google of key paid Internet search terms offered by Yahoo! today.”

According to Ballmer, the Yahoo!-Google partnership would raise a host of regulatory concerns that Microsoft would inherit if it took over Yahoo!, and it would impair Yahoo!’s ability to retain some of its most talented engineers.

“Your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path,” Ballmer wrote.