Microsoft Ends Yahoo Bid

In a shocking turn of events, Microsoft has withdrawn its bid to take over rival Yahoo. The decision appears to be costing the Internet portal's investors dearly; yesterday, Yahoo's stock price plummeted $4.20, finishing the day at $24.47. 

It's a new low for a stock price fluctuating around $28 since Microsoft and Yahoo began their stand off. (Source: microsoft.com)

The nosedive that Yahoo's stock took seems to contradict claims made by CEO Jerry Yang that Microsoft's offer, at $33-per-share, substantially undervalued the company. The Yahoo board was holding out for a price that would have increased the $46.5 billion offer by another $5 billion, an amount that Microsoft CEO Steve Ballmer was not willing to consider.

Earlier in the year, Ballmer said he was prepared to begin a proxy contest to elect a board friendly to the Redmond-based company's interests if they could not come to an agreement with Yahoo's management. However, the Microsoft CEO backed off of that position on Saturday, and accused Yang of deliberately trying to sabotage the search company's value to prevent Microsoft from going the proxy route.

Among several complaints, Ballmer said that Yahoo's proposal to enter into an advertising partnership with Google was a deliberate move to "fundamentally undermine Yahoo!'s long-term viability" and "raise a host of regulatory and legal problems" that no company would want to inherit.

There is no denying that a partnership with Yahoo would have quickly catapulted Microsoft into the No. 2 position for online search advertising behind Google, the market leader.

Replying to Microsoft's announcement, Roy Bostock, Yahoo's Chairman said, "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 [and] growing...Our solid results for the first quarter of 2008...reflect the progress the company is making." (Source: shareholder.com)

However, if Yahoo's stock price continues to decline, Yang and friends may be forced back to the bargaining table. Problem is, it's difficult to negotiate from your knees.