Microsoft ends Yahoo affair

'DEAL IS NOT TO BE' | Software maker pulls $42.3 bil. offer for Internet icon

SAN FRANCISCO -- Microsoft Corp. has withdrawn its $42.3 billion bid to buy Yahoo Inc., scrapping an attempt to snap up the tarnished Internet icon in hopes of toppling online search and advertising leader Google Inc.

The decision to walk away from the deal came Saturday after last-ditch efforts to negotiate a mutually acceptable sale price proved unsuccessful.

Microsoft was willing to pay $47.5 billion, or $33 per share, up from the bid's current value of $29.40 per share, according to a letter from Microsoft CEO Steve Ballmer to Yahoo CEO Jerry Yang.

But Yahoo demanded at least $53 billion, or $37 per share, according to Ballmer. That would have been nearly double Yahoo's stock price of $19.18 at the time Microsoft first made its bid a little over three months ago.

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

The decision to walk away came as a surprise, given that many analysts believed Microsoft wanted to close the deal badly enough to either sweeten the offer or pursue a hostile takeover -- a risky maneuver that would have required an attempt to replace the Yahoo board that spurned rejected the bid.

But Ballmer said he concluded that pursuing a so-called proxy battle was ''not sensible.''

''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,'' Ballmer wrote to Yang.

The software maker conceivably could renew its bid later this year if Yahoo can't bounce back from more than two years of financial lethargy.

Should Yahoo's turnaround efforts flop, many analysts believe the company's stock would sink into the mid-teens and open the door for another takeover offer that would be more difficult to rebuff. AP