Microsoft Steps Away From Yahoo! Deal

When Yahoo! rejected Microsoft's acquisition offer, Microsoft had three choices. They could increase the offer, proceed to a hostile takeover, or just walk away. It appears that Microsoft tried two out of the three. They increased their offer and when that failed, they decided to walk away.

In a letter to Yahoo!, Microsoft CEO Steve Ballmer was especially irked with Yahoo!'s recent negotiations with Google, saying "such an arrangement with the dominant search provider would make an acquisition of Yahoo! undesirable to us for a number of reasons."

This is really the only strategy Microsoft could take. Stockholders didn't seem pleased with Microsoft's initial offer. A proxy war would be even more expensive and could face regulatory challenges. Meanwhile, if Microsoft just waits it out they'll probably have the chance to offer a lower bid next year.