Microsoft Withdraws Yahoo! Bid

However, Microsoft executives met with Yahoo! founders Jerry Yang and David Filo, who wanted $37 per share, which would have increased the price by another $5 billion.

Microsoft has refused to raise its offer again, with Microsoft chief executive Steve Ballmer saying: “Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer. After careful consideration, we believe the economics demanded by Yahoo do not make sense for us.”

By midday yesterday in New York, Yahoo! shares had fallen $4.06 from Friday’s close to $24.60.

Online research firm eMarketer recently forecast that advertisers will spend £3.4 billion online in 2008, a rise of 27% from 2007.

In a letter to Jerry Yang posted on the Microsoft website, Ballmer said: “In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer.

“It also would have reflected a premium of over 70% compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33 offer.

“Also, after giving this week’s conversations further thought, it is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach 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.”

Yahoo! is understood to be on the verge of announcing a partnership with Google which would see Yahoo! search results carrying Google ads.