Microsoft backs out of Yahoo bid

Microsoft on Saturday evening triggered surprise by withdrawing its bid for Yahoo. Company chief Steve Ballmer has validated earlier public comments expressing doubt over the viability of concluding a deal and has revealed that Microsoft offered to raise its bid up to $33 per share in an attempt to win over the Yahoo board of directors, which has insisted so far that the initial $31 per share bid undervalues the search engine giant's worth. The Microsoft executive also states that Yahoo has insisted on a higher-still bid and that his firm doesn't consider an extended proxy effort to install a sympathetic board to be effective.

"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," Ballmer says. "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."

Ballmer also confirms that Yahoo's potential alliance with Google is one of the motivating factors behind the decision to cancel the deal. A partial deal with Google would "fragment" Yahoo's search strategy and encourage company developers to leave, negating one of the incentives behind the initial takeover attempt, he says. The deal would also create potential antitrust issues that Microsoft would not want transferred to itself in the event of a successful takeover.

Yahoo is widely known to have been contacted by Google early on and deliberately taken the approach as part of larger "poison pill" strategy, which is believed to have included potential merger talks with AOL.

Microsoft has not outlined its longer-term strategy in the wake of the deal but says that it will continue to pursue its own course in improving its competitiveness in the search advertising space, which in the past has included buyouts of aQuantive and other major web advertising firms.

"By failing to reach an agreement with us, you and your stockholders have left significant value on the table," Ballmer concludes. "But clearly a deal is not to be."

Filed under: industry
Other story tags: Microsoft, Google, Yahoo, AOL, aQuantive