All that huffing and puffing,
come to zilch

Following insider speculation that Microsoft had increased its bid for Yahoo "by a few dollars," resulting in merger talks, Microsoft announced Saturday that it is withdrawing its bid for the search company.

The change of heart occurred when CEOs Steve Ballmer and Jerry Yang, as well as Yahoo co-founder David Filo and Microsoft online president Kevin Johnson, met to discuss options in Seattle on Saturday.

As expected, Microsoft increased its bid to $47.5 billion (approximately $33 a share). Yahoo's Jerry Yang declined, on grounds that Yahoo would not accept an offer for less than $37 a share, reports an insider to The New York Times.

"Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer," Ballmer stated.

He added that "the economics demanded by Yahoo" are not within the best interests of Microsoft's stockholders, employees and stakeholders.

Insiders on behalf of Yahoo said the company worried that the deal would suffer regulatory scrutiny, which is part of the reason it wanted a higher bid.

"With the distraction of Microsoft’s unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history," stated Yahoo's Jerry Yang.

The formal withdrawal of Microsoft's takeover bid — after threats Ballmer would go so far as to oust Yahoo's board to win the company — was considered a "personal victory" for Yang.

Yahoo is currently in talks with Google for a sponsored search deal.

Image credit: How Stuff Works.