Yahoo gets silent treatment

Stock plummets 10% after buyout talks with Microsoft break off again

Yahoo said Thursday that its talks with Microsoft have ended, with the software giant unwilling even to revisit a previous offer to buy Yahoo for $47.5 billion. Instead, Yahoo will work closer with its biggest rival, Google.

The Microsoft news sent Yahoo shares tumbling 10.1% to $23.52, while the announcement of a Google partnership came late Thursday, after Wall Street's closing bell.

Microsoft CEO Steve Ballmer had pursued Yahoo for about five months, but when Yahoo countered his $33-per-share offer with $37 per share, he walked away.

Apparently, Yahoo CEO Jerry Yang might have had second thoughts recently. If so, they came too late for Ballmer's liking.

"Representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo, even at the price range it had previously suggested," Yahoo said.

Microsoft was, however, interested in acquiring only Yahoo's search business, but Yahoo said "such a transaction would not be consistent with the company's view of the converging search and display marketplaces."

Such a sale also would have spoiled the plans Yahoo was hatching with Google. The two rivals have been testing a partnership, but Thursday they confirmed that a more permanent arrangement has been struck.

Yahoo said its Google strategy has it running ads supplied by Google alongside searches at Yahoo's main site, and select other properties, in the U.S. and Canada.

The deal could be worth $800 million in annual revenue to Yahoo and up to $450 million in incremental operating cash flow in the first 12 months, Yahoo said.

Yang called the deal "an important next step in our open strategy, building on the progress we have already made in advancing a more open marketplace."

Yahoo also faces a proxy battle with billionaire investor Carl Icahn, who wants to oust Yang as CEO and replace the entire board. His justification, in part, is that Yahoo shares have sunk almost 18% since Eric Schmidt-led Google became a publicly traded company four years ago, while Google's shares have advanced more than 440%.

According to Nielsen/NetRatings, Google has a 62% share of the U.S. online search market and boasted year-over-year growth of 35.4%. Yahoo has a 17.5% share with negative growth of 3.4%.

Microsoft's MSN/Windows Live Search is third with a 9.7% share and 30% growth. (partialdiff)