Microsoft announced it is abandoning its bid to acquire Yahoo after the web services giant rejected its latest offer. Citing sources close to the negotiations, The New York Times reports Microsoft CEO Steve Ballmer met Saturday morning with Yahoo CEO and co-founder Jerry Yang to increase Microsoft's bid offer to $33 a share--about $47.5 billion--from $29.40 a share. When Yang replied that Yahoo would not accept an offer below $37 per share, Ballmer balked, later issuing a statement reading in part "After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal."

With financial analysts expecting Yahoo's stock price to plunge in the wake of this latest news, the company's future is cloudy: An unnamed executive told the NYT "If the stock drops as far as I think it will, a lot of employees are going to be angry and many key employees could leave." Yahoo is also rumored to be discussing a search advertising partnership with rival Google and in merger talks [1] with Time Warner's AOL unit and News Corp.-owned MySpace. As for Microsoft, the failed Yahoo bid means the software goliath is still no closer to solving the threat posed by Google, which now sets the pace in web services like advertising.

For more on the Microsoft/Yahoo breakdown:
- read this New York Times article [2]

Related articles:
Yahoo [3] to launch voice-enabled oneSearch 2.0
T-Mobile jilts Google for Yahoo [4] oneSearch
AT&T, Yahoo [5] ink advertising deal