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Yahoo and Microsoft end talks; Yahoo stock craters

June 12, 2008 | 12:35 pm
Talks between Yahoo and Microsoft fell apart

UPDATE 1 P.M.: Microsoft just issued a statement hinting that Yahoo walked away from the search-deal talks and that Microsoft was open to continuing those conversations:

In the weeks since Microsoft withdrew its offer to acquire Yahoo!, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo! shareholders. This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers. As stated on May 3rd and reiterated on May 18th Microsoft was not interested in rebidding for all of Yahoo!. Our alternative transaction remains available for discussion.


Yahoo's stock plunged nearly 12% early this afternoon after the Internet giant said acquisition talks with Microsoft had fallen apart.

In a press release, Sunnyvale, Calif.-based Yahoo said it had tried to negotiate a takeover deal with Microsoft, but that the Redmond, Wash.-based software giant had "stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo!, even at the price range it had previously suggested." That's a big change from a few months ago, when Microsoft launched an unsolicited bid on Feb. 1 that was then worth $44.6 billion.

Microsoft also had proposed acquiring only Yahoo's Web search business, but Yahoo wouldn't go for it. The Internet company said:

Yahoo!'s Board of Directors has determined, after careful evaluation, that such a transaction would not be consistent with the company's view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! stockholders.

Microsoft had publicly offered $31 a share in cash and stock for Yahoo, but Yahoo rejected the unsolicited bid several times, saying it wasn't in the best interest of its shareholders. Microsoft said it later upped its offer to $33 a share but then walked away May 3 after Yahoo's board didn't accept.

With their best hope for a payday now gone, Yahoo shareholders sent the stock tumbling to around $23, from the opening price of $26.33. Microsoft shares rose more than 3% to around $28 in late trading.

Yahoo is facing a bruising proxy battle with billionaire investor Carl Icahn and an exodus of some of its top executives, including Jeff Weiner, who had overseen the search business and other important Yahoo products. Its best hope might be a long-discussed search advertising partnership with rival Google. The Wall Street Journal reported this afternoon that Yahoo and Google were close to such a deal.

Standard & Poor's equity analyst Scott Kessler wrote in a note to clients (MSFT is Microsoft's stock ticker at YHOO is Yahoo's) today:

We are surprised, because MSFT has apparently pursued YHOO for the better part of two years and Carl Icahn was pushing the companies together. Our sense is that MSFT wanted better value than YHOO was willing to offer, and was wary of potential morale and retention issues.

Beat reporters Jessica Guynn and Joseph Menn are dogging this story, so keep checking back for updates.

-- Chris Gaither

Photo by Paul Sakuma / Associated Press