Throughout Microsoft Talks, Yahoo Appeared Unwilling to Sell

Exterior view of Yahoo headquarters in Sunnyvale, Calif., Wednesday, April 30, 2008. Microsoft Corp.'s directors were meeting Wednesday to consider raising the software maker's $41.9 billion bid for Yahoo Inc. instead of pursuing a threatened hostile takeover attempt, according to a published report. Microsoft also is weighing withdrawing its bid - a move likely to cause a precipitous drop in Yahoo's stock, which has been bolstered by the 3-month-old takeover bid. (AP Photo/Paul Sakuma) (Paul Sakuma - AP)

Google's dominance in online advertising, and the lack of a strong alternative, led some advertising firms to express disappointment in Microsoft's decision to back away from the deal.

"It's disappointing," Sir Martin Sorrell, chief executive of WPP Group, an advertising conglomerate, said on Sunday. "I think most of our clients wanted to have a better online marketplace. Unfortunately it hasn't come to pass."

The next phase in the competition for Web business will begin with Wall Street today, when investors will be closely watching Yahoo's stock price.

Its share price had risen significantly from $19.18 on the day Microsoft's offer was announced to $28.67 on Friday.

Many expect that without the $31-a-share offer from Microsoft, its stock will fall again.

How far will be a matter of keen personal interest, of course, to Yahoo chief executive Jerry Yang, who had resisted pressure from some investors to make a deal.

During the negotiations, Yang presented shareholders with plans projecting robust revenue growth for Yahoo. He used those projections to argue that Microsoft's bid significantly undervalued the company.

Yahoo also announced that it would begin partnering with Google in search advertising. If consummated, that deal would have devalued Yahoo for Microsoft, and Ballmer cited it as one of the main reasons he opted against launching a hostile takeover bid.

Three days after the Portland meeting, Yahoo proposed a price of $40 share, an enormous premium over Yahoo's previous price.

For Microsoft, "that was a little hard to deal with," a source said.

Then as the negotiations were winding down, there was another indication that Yang and co-founder David Filo may have been simply reluctant to sell the company.

But while the Yahoo board was willing to sell for $37, Yang and Filo wanted to hold out for $38, according to a source familiar with the negotiations. Some major Yahoo shareholders meanwhile have indicated that they would settle for $34.

Microsoft had raised its bid to $33 a share.

Today, the market will weigh in with its decision.