The full text of Microsoft
CEO Steve Ballmer's letter to Yahoo CEO Jerry Yang concerning Microsoft's
withdrawal
of its acquisition bid follows below:

May 3, 2008

Mr. Jerry Yang

CEO and Chief Yahoo

Yahoo Inc.

701 First Avenue

Sunnyvale, CA 94089

Dear Jerry:

After over three months, we have reached the conclusion of the process regarding
a possible combination of Microsoft and Yahoo.

I first want to convey my personal thanks to you, your management team, and
Yahoo's Board of Directors for your consideration of our proposal. I appreciate
the time and attention all of you have given to this matter, and I especially
appreciate the time that you have invested personally. I feel that our discussions
this week have been particularly useful, providing me for the first time with
real clarity on what is and is not possible.

I am disappointed that Yahoo has not moved towards accepting our offer. I first
called you with our offer on January 31 because 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.

In our conversations this week, we conveyed our willingness to raise our offer
to $33.00 per share, reflecting again our belief in this collective opportunity.
This increase would have added approximately another $5 billion of value to
your shareholders, compared to the current value of our initial offer. It also
would have reflected a premium of over 70 percent compared to the price at which
your stock closed on January 31. Yet it has proven insufficient, as your final
position insisted on Microsoft paying yet another $5 billion or more, or at
least another $4 per share above our $33.00 offer.

Also, 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. 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.

We regard with particular concern your apparent planning to respond to a "hostile"
bid by pursuing a new arrangement that would involve or lead to the outsourcing
to Google of key paid Internet search terms offered by Yahoo today. In our view,
such an arrangement with the dominant search provider would make an acquisition
of Yahoo undesirable to us for a number of reasons:

-- First, it would fundamentally undermine Yahoo's own strategy and long-term
viability by encouraging advertisers to use Google as opposed to your Panama
paid search system. This would also fragment your search advertising and display
advertising strategies and the ecosystem surrounding them. This would undermine
the reliance on your display advertising business to fuel future growth.

-- Given this, it would impair Yahoo's ability to retain the talented engineers
working on advertising systems that are important to our interest in a combination
of our companies.

-- In addition, it would raise a host of regulatory and legal problems that
no acquirer, including Microsoft, would want to inherit. Among other things,
this would consolidate market share with the already-dominant paid search provider
in a manner that would reduce competition and choice in the marketplace.

-- This would also effectively enable Google to set the prices for key search
terms on both their and your search platforms and, in the process, raise prices
charged to advertisers on Yahoo. In addition to whatever resulting legal problems,
this seems unwise from a business perspective unless in fact one simply wishes
to use this as a vehicle to exit the paid search business in favor of Google.

-- It could foreclose any chance of a combination with any other search provider
that is not already relying on Google’s search services.

Accordingly, your apparent plan to pursue such an arrangement in the event
of a proxy contest or exchange offer leads me to the firm decision not to pursue
such a path. Instead, I hereby formally withdraw Microsoft’s proposal to
acquire Yahoo.

We will move forward and will continue to innovate and grow our business at
Microsoft with the talented team we have in place and potentially through strategic
transactions with other business partners.

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

But clearly a deal is not to be.

Thank you again for the time we have spent together discussing this.

Sincerely yours,

Steven A. Ballmer

Steven A. Ballmer

Chief Executive Officer

Microsoft Corporation

IDG News Service

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