Sunday May 4

Microsoft deletes its Yahoo bid

By Pete Carey / Bay Area News Group

Microsoft dropped its bid to buy Yahoo on Saturday after negotiations stalemated on price, with the Redmond, Wash., software giant upping its bid by $5 billion and Yahoo demanding twice that.

The Redmond software giant said it doesn't intend to mount a battle to replace Yahoo's board of directors, as some observers thought it would in the absence of a deal.

The problem was price. Microsoft upped its offer to $33 a share, or nearly $5 billion more than its original $31-a-share offer, announced Feb. 1. But Yahoo demanded another $5 billion, Microsoft said.

Microsoft chief executive Steve Ballmer vowed last week not to pay "a penny" more than he thought Yahoo was worth, and he kept his word on Saturday.

The software colossus announced it was withdrawing its offer late this afternoon in a statement on its Web site. Accompanying the statement was a letter from Ballmer to Yahoo chief executive Jerry Yang.

"Clearly a deal is not to be," Ballmer wrote.

Ballmer expressed disappointment to Yang that the deal had fallen through, but said Microsoft was prepared to go it alone.

"I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares," Ballmer wrote to Yang.

"By failing to reach an agreement with us, you and your stockholders have left significant value on the table," he added.

Now, investors will be watching to see how Yahoo's stock performs on Monday. It had reached $29 a share on Friday in expectation of a deal. But it was trading slightly over $19 a share on Jan. 31, the day before the Microsoft offer.

Yahoo is taking a calculated risk that shareholders will stick with it in the absence of a deal that had originally offered a 62 percent premium on its share price, and a 70 percent premium with its latest offer.

Ballmer told Yang he thought the combination of the two companies was the best way forward. Microsoft, a distant third in online advertising revenue, has said it needs a partner - Yahoo - to compete with Google, which dominates online advertising revenue.

"I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62 percent premium at that time reflected the strength of these convictions," Ballmer wrote to Yang.

But Yahoo "insisted on Microsoft paying yet another $5 billion more," or $4 a share above Microsoft's final offer, Ballmer wrote.

Ballmer also indicated that he did not feel a battle for control of Yahoo's board, or a so-called proxy battle, made sense.

"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," he 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."