After three months of trying to woo a very reluctant Yahoo board of directors into accepting a takeover offer, Microsoft has withdrawn its bid for the rival Web company. According to Reuters, Microsoft CEO Steve Ballmer raised his offer from $29 to $33 per share in a last-ditch effort last week, bumping the potential value of the deal to $47.5 billion. However, Yahoo CEO Jerry Yang told Ballmer he would only accept $37 per share.
Rather than take the offer to Yahoo's shareholders as he had threatened to do in his April 6 ultimatum, Ballmer simply pulled the deal off the table. In his letter to Yang, Ballmer explains why he chose the latter:
[Taking our offer directly to your shareholders] would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft.
We regard with particular concern your apparent planning to respond to a "hostile" bid by pursuing a new arrangement that would involve or lead to the outsourcing to Google of key paid Internet search terms offered by Yahoo! today.
With the possibility of a merger between the two companies all but gone, Reuters says analysts believe Yahoo's shares will tumble from Friday's closing price of $28.67 to around $20. The same shares were worth just $19.18 the day before Microsoft made its initial offer. (Thanks to everyone who mailed this in.)
Update 9:05 AM: Yahoo shares have already fallen around 18% to $23.46. Meanwhile, Google's share price has grown by almost 2% to $591.63.