RPT-UPDATE 3-Microsoft withdraws offer for Yahoo

(Repeating item that initially moved late Saturday with no changes to text or headline) (Adds comments from Yahoo, investor, analyst)

By Anupreeta Das

SAN FRANCISCO, May 4 (Reuters) - Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) walked away from its bid to buy Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) on Saturday after the Internet company turned down its offer to raise the price by $5 billion to $47.5 billion.

Microsoft's offer was for $33 a share, but Yahoo would not lower its demand below $37, Microsoft Chief Executive Steve Ballmer said. The software company initially bid $31 per share for Yahoo more than three months ago.

"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," Ballmer said in a statement.

Analysts say Yahoo has overplayed its hand and they expect the Web pioneer's shares to fall as much as 30 percent to $20 levels when Nasdaq trading resumes on Monday. The stock rose nearly 7 percent to $28.67 on Friday on hopes of an agreement between Microsoft and Yahoo.

"Wow. I'm shocked Yahoo wasn't more reasonable. The stock will probably go down at least $5 on Monday. It is surprising that Ballmer walked away instead of trying a hostile bid at $33," said Walter Price, a senior portfolio manager at RCM fund management company in San Francisco, which had 21 million Microsoft shares and 2 million Yahoo shares as of the end of December.

Laura Martin, a senior analyst at Soleil Securities, said she expected a number of shareholder lawsuits against Yahoo.

"The Yahoo guys want too much money for their company. We think $33 a share is fair in the context of the weakening economic environment and adverse advertising trends," she said. "They've prioritized employees over shareholders in the hopes that someday they can create more than $8 billion of value, even if they have no track record of doing so," she said.