Microsoft has dropped its three-month-long pursuit of Yahoo, ending a historic
acquisition attempt whose failure takes Microsoft back to square one in its
quest to boost its online business to better compete against Google.

"We continue to believe that our proposed acquisition made sense for Microsoft,
Yahoo and the market as a whole. Our goal in pursuing a combination with Yahoo
was to provide greater choice and innovation in the marketplace and create real
value for our respective stockholders and employees," said Microsoft CEO
Steve Ballmer in a statement distributed early Saturday evening.

Microsoft had raised its initial bid by about US$5 billion, or to $33 per share,
but that didn't convince Yahoo to accept the revised offer, as Yahoo wanted
$37 per share, Microsoft said. "After careful consideration, we believe
the economics demanded by Yahoo do not make sense for us, and it is in the best
interests of Microsoft stockholders, employees and other stakeholders to withdraw
our proposal," said Ballmer.

In response, Yahoo issued a statement reiterating its position that Microsoft's
offer was too low, and saying that many Yahoo shareholders agreed with its position.

"Yahoo is profitable, growing, and executing well on its strategic plan
to capture the large opportunities in the relatively young online advertising
market," Roy Bostock, the chairman of Yahoo's board, said in the statement.

Yahoo CEO Jerry Yang said that "with the distraction of Microsoft's unsolicited
proposal now behind us" Yahoo can continue with "the most important
transition in our history."

All parties with a stake in the deal had been waiting for Microsoft to announce
its next move, after Yahoo failed to agree to a deal by last Saturday, the deadline
Microsoft had set three weeks earlier.

But Microsoft stayed silent for days, as observers speculated whether it would
walk away or prepare a hostile takeover. However, on Friday anonymously sourced
reports in The Wall Street Journal and The New York Times said that Microsoft
and Yahoo had turned a corner and were for the first time negotiating merger
terms in earnest.

Ultimately, it seems that Microsoft's management, fatigued by Yahoo's resistance
and demands, decided that engaging in a proxy fight to oust Yahoo's directors
would be an arduous and nasty process. After all, for Microsoft, the goal of
the massive acquisition was to quickly become a mightier competitor to Google
in online advertising.

"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," Ballmer wrote in a
letter he sent Saturday to Yang.

As soon as Microsoft

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