Acquisition attemptOF YAHOO by Microsoft

Microsoft and Yahoo! pursued merger discussions in 2005, 2006, and 2007, that were all ultimately unsuccessful. At the time, analysts were skeptical about the wisdom of a business combination.

On February 1, 2008, after its friendly takeover offer was rebuffed by Yahoo!, Microsoft made an unsolicited takeover bid to buy Yahoo! for US$44.6 billion in cash and stock. Days later, Yahoo! considered alternatives to the merger with Microsoft, including a merger with internet giant Google or a potential transaction with News Corp. However, on February 11, 2008, Yahoo! decided to reject Microsoft's offer as "substantially undervaluing" Yahoo!'s brand, audience, investments, and growth prospects. As of February 22, two Detroit based pension companies have sued Yahoo! and their board of directors for breaching their duty to shareholders by opposing Microsoft's takeover bid and pursuing "value destructive" third-party deals. In early March, Google CEO Eric Schmidt went on record saying that he was concerned that a potential Microsoft-Yahoo! merger might hurt the Internet by compromising its openness. The value of Microsoft's cash and stock offer declined with Microsoft's stock price, falling to $42.2 billion by April 4. On April 5, Microsoft CEO Steve Ballmer sent a letter to Yahoo!’s board of directors stating that if within three weeks they had not accepted the deal, Microsoft would approach shareholders directly in hopes of a electing a new board and moving forward with merger talks. In response, Yahoo! stated on April 7 that they were not against a merger, but that they wanted a better offer. In addition, they stated that Microsoft's "aggressive" aproach was worsening their relationship and the chances of a "friendly" merger. Later the same day, Yahoo! stated that the original $45 billion offer was not acceptable. Following this, there has been considerable discussion of having Time Warner's AOL and Yahoo! merge, instead of the originally proposed Microsoft deal.

On May 3, 2008, Microsoft withdrew their offer. During a meeting between Ballmer and Yang, Microsoft had offered to raise its offer by $5 billion to $33 per share, while Yahoo! demanded $37. One of Ballmer’s lieutenants suggested that Yang would implement a poison pill to make the takeover as difficult as possible, saying "They are going to burn the furniture if we go hostile. They are going to destroy the place."

Analysts say that Yahoo!’s shares, which closed at $28.67 on May 2, are likely to drop below $25 and perhaps as low as $20 on May 5, which would put significant pressure on Yang to engineer a turnaround of the company. Some suggest that institutional investors would file lawsuits against Yahoo!’s board of directors for not acting in shareholder interest by refusing Microsoft's offer.

On May 5, 2008, following Microsoft's withdrawal Yahoo!’s stock plunged some 13% lower to $23.02 in Monday trading and trimmed about $6 billion off of its market capitalization.

After Microsoft's failed bid to acquire Yahoo!, Microsoft is rumored to be looking at acquiring LiveDoor, a leading Japanese portal and the leading blogging service in Japan, to strengthen its position against Yahoo! Japan.