Microsoft walks away from Yahoo! deal

Microsoft has dropped its bid to buy internet giant Yahoo! after failing to reach an agreement on the deal, despite a last minute increase in the value of the offer.

Microsoft had raised its offer for Yahoo! from $32 per share to $33 per share, reflecting an increase in value of around $5 billion, but Yahoo! was said to have been holding out for $37 per share.

In a statement from Microsoft, CEO Steve Ballmer said: "Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo! has not moved toward accepting our offer. 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."

The move was contrary to the predictions of Wall Street analysts, who had, for the majority, predicted a hostile takeover.

Roy Bostock, Chairman of Yahoo! said: "From the beginning of this process, our independent board and our management have 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. Yahoo! is profitable, growing, and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market. Our solid results for the first quarter of 2008 and increased full year 2008 operating cash flow outlook reflect the progress the company is making."