Microsoft says proxy battle not worth it
Microsoft officially pulled its offer for Yahoo on Saturday, confirming an earlier report by CNET News.com.
In a letter to Yahoo CEO Jerry Yang, Microsoft chief Steve Ballmer confirmed that Microsoft was willing to offer $33 a share, but that Yahoo was holding out for at least $37 a share, or $5 billion more than Microsoft was prepared to spend. In the letter, Ballmer also says he is ruling out a direct offer to shareholders.
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"This approach would necessarily involve a protracted proxy contest and eventually an exchange offer," Ballmer said. "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 specifically pointed to Yahoo's plan to outsource its paid search to Google. "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," Ballmer said.
Such a move, Ballmer wrote, would undermine Yahoo's strategy and long-term viability, hurt its ability to retain engineers, and pose regulatory and legal problems.
Ballmer said in a statement that Microsoft would pursue its own strategy.
"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," he said. "We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo would have accelerated our strategy, I am confident that we can continue to move forward toward our goals."
In the letter to Yang, Ballmer again made the case that Microsoft's offer was the best option for Yahoo shareholders.
"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," Ballmer said. "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."
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina. 
I agree with Steve Ballmer. It doesn't make sense to buy up a company/service if these are true:
1.) Asking more than what it is worth...
2.) Outsources their resources? This leads to future breach in security, more legal issues, and more chance of corporate secrecies being leaked out.
3.) If Yahoo is outsourcing to Google, might as well buy up Google as well.
Jerry Yang does not serve Microsoft's best interest.
We'll just see how the SOX audit will say about Yahoo's position--all companies that are on the stock market are subject to SOX auditing.
Reg.
2. For the time being, I see Yahoo transitioning their services to provide a competing set of tools for use on the web. Their YUI would most likely be a key part of this strategy and focusing here would actually make better sense since the search market isn't really going anywhere anymore. It's a convoluted mess of paid-for rankings that the consumer shouldn't trust anymore.
3. Microsoft, I believe, entertained the idea that Google would be a good buy at some point, but Google showed enough teeth during the food tasting that left Microsoft with a sour stomach enough to put it aside.
And WTH does SOX have to do with this? I'm sorry, but SOX is more for regulation of accounting and while this does indeed involve a lot of it, how does this even come up into the picture?
Can I have whatever it is you're smoking? It's obviously not any known illegal narcotic or barbituate.
WK