Microsoft Bails on Yahoo Bid

The deal to end all deals is not to be.

After three months of saber rattling, back-room negotiations and calculated media leaks, Microsoft CEO Steve Ballmer has walked away from its bid to buy Yahoo.

In a letter sent to Yahoo CEO Jerry Yang dated today, Ballmer announced that Microsoft was pulling the acquisition offer off the table after raising the initial offer of $31 per share to $33.

“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer,” Ballmer said. “After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is the best interests of Microsoft shareholders, employees and stakeholders to withdraw our proposal.”

After negotiations between the two companies this week broke down, Microsoft determined that taking the bid hostile by attempting to oust Yahoo’s board of directors would be ill advised.

Specifically, Ballmer said that Yahoo’s pursuit of a deal to outsource its search advertising services to Google made the company “undesirable” to a potential acquirer for the regulatory issues it would raise, and that it would erode the long-term value of Yahoo’s internal advertising platform.

In prompt response to the withdrawal of the bid, Yahoo issued a statement reiterating its long-held position that Microsoft’s offer shortsighted the company’s brand value and its prospects for future growth.

“From the beginning of this process,” said Yahoo Chairman Roy Bostock, Yahoo “has 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.”

Looking forward, Yang added that “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.”