Rush of Microsoft and Yahoo talks preceded end

By Anupreeta Das

SAN FRANCISCO (Reuters) - After three months of waiting, the end of Microsoft Corp's pursuit of Yahoo Inc ended in a rush.

A flurry of last-minute talks between the heads of the software and Internet giants preceded Saturday's decision by Microsoft to end its effort to buy Yahoo, said three people familiar with the talks, who were not authorized to speak publicly about them.

Yahoo co-founders Jerry Yang and David Filo flew to Seattle to meet Microsoft Chief Executive Steve Ballmer and his lieutenant Kevin Johnson on Saturday morning, where they indicated Yahoo could do a deal at $37 a share, sources said.

That was the last face-to-face meeting of a busy week.

Microsoft's deadline to Yahoo to reach a deal or prepare to face a hostile takeover passed without incident a week ago on Saturday.

But the following Tuesday, Yang and Roy Bostock, the chairman of Yahoo's board, called Ballmer twice, urging the Microsoft CEO not to make good on his threat to go hostile or walk away, a person familiar with Microsoft's thinking said.

The next day, Wednesday Apr 30, Ballmer flew to Palo Alto, Calif., for a meeting with Yang near Yahoo's Sunnyvale headquarters, the sources said.

Yang had long said that Microsoft's cash-and-stock offer, originally worth $31, was not enough. On Wednesday he informally told Ballmer that Yahoo could go for less than $40 a share, a price previously tossed out as a possibility -- but never formally quoted -- in meetings between advisers on both sides, sources said.

Yahoo indicated that "below $40, there could be a lot of debate," one person close to the company said.

But price wasn't the only stumbling block, two people familiar with the negotiations said.

At an Apr 15 meeting in Portland, Oregon, Yahoo had also raised regulatory concerns about a potential merger, and pressed for "value-certainty" -- assurances that the value of Microsoft's offer would remain the same when the deal, if it did get done, closed, one of the two people said.

In recent days, Microsoft had indicated the possibility it could raise its offer by a "couple of dollars", but did not formally make a higher offer to Yahoo, one of the people involved in the discussions said. Neither did it address Yahoo's concerns adequately, the person said.

Despite harsh talk in public letters over the last few months, the two sides were cordial in recent days.

"It didn't end with any acrimony," the source said. "Ballmer knew there was only one way to acquire Yahoo, and that was on a friendly basis."

News that talks had heightened leaked on Friday evening, but both sides were being careful about what they promised.