All Things Digital

After a months-long standoff, Microsoft (MSFT) has abandoned its bid for Yahoo (YHOO), people involved in the discussions said today.

Microsoft confirmed to BoomTown that talks between the two companies, which have been taking place all week, collapsed Saturday when they could not agree on a price.

According to sources close to Microsoft, the talks broke down this afternoon after a face-to-face meeting in the Seattle area that included Microsoft CEO Steve Ballmer, Kevin Johnson, president of Microsoft’s Platforms & Services Division and Yahoo Co-Founders Jerry Yang and David Filo.

According to sources, Microsoft offered $33 a share, and Yahoo countered with $37 a share. The talks went nowhere from there.

Microsoft was also concerned with the lack of friendly integration and other major strategic problems, including the email monopoly that would arise from the merger of the two companies, as well as any outsourcing ad deal Yahoo might sign with Microsoft archrival Google (GOOG) before Microsoft completed an acquisition.

In addition, Microsoft sources said, Yahoo requested other unspecified costs that Microsoft was unwilling to accept.

As BoomTown has written recently, there have been ongoing meetings between the two companies recently in a bid to avoid a nasty takeover battle.

According to sources close to Microsoft, they include a meeting on April 15 in Portland, Ore. (as BoomTown said here), another by phone on April 18 and a meeting that included Ballmer and Yang in California on April 30.

At several points during the last few weeks, Yahoo execs had asked for over $40 a share to consummate the deal, a price Microsoft rejected. Yahoo’s Yang subsequently called Ballmer with the lower $37 price, which was discussed today.

In a letter to Jerry Yang, Steve Ballmer said that Microsoft will not move forward with a proxy fight and will instead pursue a more “organic” strategy in the online advertising market.

…It is clear to me that it is not sensible for Microsoft to take our offer directly to your shareholders. This approach would necessarily involve a protracted proxy contest and eventually an exchange offer. Our discussions with you have led us to conclude that, in the interim, you would take steps that would make Yahoo undesirable as an acquisition for Microsoft.”

A deal with Google is what Ballmer is specifically referring to in his last sentence.

That is not to say that Microsoft might not circle back and again attempt to acquire Yahoo at some point in the future, especially if the company’s stock tanks on Monday, as many expect it will.

That could be a problem for Yahoo in its quest to remain independent.

The options for Yahoo include a partnership with AOL (TWX) or News Corp. (NWS), an outsourcing deal with Google–which may present other antitrust problems–or actually improving its business.

That’s the one thing, of course, that’s been a problem for Yahoo managers and what landed them in this mess in the first place.