Microsoft rules out buying Yahoo but likes search deal

Microsoft Chief Executive Officer Steve Ballmer speaks during a luncheon and conference on technology and innovation in Madrid April 25, 2008.

NEW YORK (Reuters) - Microsoft Corp Chief Executive Steve Ballmer ruled out an acquisition of Yahoo Inc on Wednesday but said his company was interested in resuming talks on a Web search partnership.

Yahoo shares fell 19 percent on the remarks, after gaining this week on renewed investor hopes that Microsoft may refresh its bid for the Internet company after Yahoo Chief Executive Jerry Yang announced that he would step down.

"Let me be as clear as I think I've tried to be publicly. We are done with all acquisition discussions with Yahoo," Ballmer told Microsoft's annual shareholders meeting, in response to a question on what was happening with Yahoo.

"I've said that a bunch of times. Somehow some people have gotten confused nonetheless," Ballmer added. "We thought we had something that made sense. (It) didn't make sense to them. We've moved on."

Microsoft withdrew its $47.5 billion buyout offer for Yahoo in May after Yang and his board rejected the bid as too low. The software company then offered to buy Yahoo's search business, but Yahoo decided instead to sign a search advertising deal with Google Inc

The Google deal has since fallen apart, after opposition from U.S. antitrust regulators who were concerned about an alliance between the Web's two biggest search companies.

Microsoft has said that it was still interested in pursuing a search deal with Yahoo, and Ballmer reiterated that on Wednesday.

"There's no active discussion on that front. But we'd be very open to it. But acquisition discussions are finished," he said.

At the meeting, which was broadcast over the Internet, Ballmer told shareholders that while the world's biggest software maker is seeing growth in all of its business groups, it is "not immune" to the tough economic climate.

He repeated that Microsoft is looking for areas to cut costs, including hiring, which "points to much, much slower growth...in head count for the remainder of this financial year and I suspect into next financial year."

However, investment in research and development would continue, Ballmer said.

Microsoft, the world's largest software maker with more than 91,000 employees worldwide, has been on a hiring spree, adding more than 20,000 employees in the last two years.

Shares of Yahoo fell 19 percent to $9.38, while Microsoft shares were down 3 percent at $18.99.

(Reporting by Franklin Paul, Editing by Derek Caney)