"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," Yahoo co-founder and Chief Executive Jerry Yang said in a statement.
Jordan Rohan, founder of digital media advisory firm Clearmeadow Partners, said Yahoo could name Time Warner as a partner or buy AOL to put a positive spin on the situation, but neither option would give as good a payoff to shareholders.
"Yahoo management and board overplayed its hand. Shareholders were cheated out of a victory," Rohan said. "I think Yahoo forgot what it felt like to have a share price under $20. They may be reminded soon."
Ballmer cited Yahoo's Google plans as one reason Microsoft was walking away rather than mounting a hostile offer.
"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," Ballmer said in a letter to Yang, made public on Saturday. "In our view, such an arrangement with the dominant search provider would make an acquisition of Yahoo undesirable to us."
REALLY WALKING?
Microsoft wants to buy Yahoo to gain a stronger foothold in its battle with Google, which is expanding rapidly into the software maker's own turf with new Web-based applications.
Technology analysts say Microsoft may not really walk away from Yahoo, and Saturday's move could parallel Oracle Corp's strategy in winning over BEA Systems Inc. Oracle pulled its offer in October 2007, leading BEA shares to fall 6 percent. Despite the tough talk, the companies reached an agreement in January this year.
Although Microsoft has not succeeded in sealing a deal, tough talk by Ballmer has already brought Yahoo to the negotiating table.
According to a person familiar with Microsoft's thinking, Yahoo's advisers said initially it would not negotiate with Microsoft for anything less than $40 a share. But amid threats by Microsoft to launch a hostile takeover, Yang suggested a price of $38 a share, the person said.
On Saturday, Yang and Yahoo co-founder David Filo met Ballmer and Microsoft's Platforms & Services Division President Kevin Johnson in Seattle, where they communicated that Yahoo's board was willing to cut a deal at $37 a share, although the two co-founders remained committed to a dollar more per share, the source said.
Price was not the only stumbling block, another person familiar with the discussions said. Microsoft had also failed to respond adequately to antitrust regulatory concerns that Yahoo raised at several meetings, said the source who was not authorized to speak on the record.
Yahoo also wanted "value-certainty" assurances the value of Microsoft's offer would remain the same when the deal, if it did get done, closed, the person said.
