Microsoft Abandons Yahoo Takeover

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After three dramatic months, Microsoft has officially ended its bid to take over Internet giant Yahoo because the companies failed to agree on a price. According to reports, Microsoft’s withdrawal from the proposed deal follows a breakdown in talks Saturday morning: at the meeting in Seattle, Microsoft offered to increase its offer from $31 per share to $33 per share—which would sweeten the deal by about $5 billion—but Yahoo reportedly wouldn’t accept a price below $37 a share. Microsoft CEO Steve Ballmer and platforms and services president Kevin Johnson attended the meeting, as did Yahoo co-founders Jerry Yang and David Filo.

In a statement released Saturday evening, Microsoft indicated it will not attempt a hostile takeover of Yahoo by nominating its own slate of directors or taking its offer directly to shareholders. “[It] is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders,” Ballmer wrote. “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.”

In a separate statement, Yahoo chairman Roy Bostock responded: “From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft’s offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view.”

The two companies will continue to go their separate ways, but the three-month dance may have some long-term consequences for both companies. Industry watchers see Microsoft making a series of smaller acquisitions—of course, compared to $40 billion, almost any acquisition will be smaller—to bolster its online advertising and search marketing businesses. Yahoo, in turn, may find unexpected synergies have developed as a result of its two-week experiment running Google ads on Yahoo sites. “This process has underscored our unique and valuable strategic position,” wrote Yahoo CEO Jerry Yang in a statement. “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.”

Of course, Microsoft may also come courting Yahoo again…especially if Jerry Yang can’t deliver promised revenues to shareholders within a few quarters. If Yahoo’s stock price sags low enough, Yahoo investors may swoon over a renewed Microsoft takeover effort—even at a substantially lower price.

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