The software corporation's latest bid was $47.5 billion, $33 per share, or 70% above Yahoo's market price, but the Internet company insisted on $53 billion, or $37 a share, Microsoft CEO Steve Ballmer said.
"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 shareholders to withdraw our proposal," Ballmer said.
Analysts said the decision was influenced by Microsoft key shareholders as the stocks of Bill Gates' empire have dropped by 10% over three months of negotiations on the deal.
As of Friday evening, Microsoft stocks traded at $29.24 per share. Yahoo shares, on the contrary, climbed by 49% in the period, to $28.67.
Experts predict Yahoo shares will decline $5-$8 on the news on Monday. They also said neither of the two companies would profit from the failed deal, whereas it would only play into the hands of their rival, dominant search provider Google.
Some experts, however, suggest Microsoft and Yahoo! could return to the negotiations under pressure from market players, showing greater flexibility.
