SAN FRANCISCO - Yahoo shares fell 15 percent Monday as hopes for the once-dominant Internet icon dimmed following Microsoft's withdrawal of a $47.5 billion takeover bid.
The sell-off wiped out nearly half the gain in Yahoo Inc.'s stock price since Microsoft Corp. made its initial offer on Jan. 31 in an effort to challenge online advertising and search leader Google Inc. The downturn left Yahoo's market value about $14 billion below Microsoft's last offer.
Last-ditch talks between Yahoo and Microsoft were fruitless, leading Microsoft to walk away from a deal Saturday.
Yahoo shares shed $4.30 on Monday to close at $24.37, well below Friday's close of $28.67, when investors were still hopeful about a deal.
Despite the backlash, analysts doubt Yahoo shares will fall back to their $19.18 pre-bid price, partly because some investors may still be holding out hope that the software maker will renew its takeover attempt if Yahoo continues to struggle.
Google shares rose $13.61, or 2.3 percent, to close at $594.90. The company not only averted a marriage it had fiercely objected but also began discussions that could lead to a long-term advertising partnership with Yahoo, a deal made more likely with Microsoft's withdrawal. Any Google-Yahoo alliance, though, would likely face antitrust hurdles.
Meanwhile, shares in Microsoft fell 16 cents, or 0.6 percent, to close at $29.08. The shares had declined 10 percent to $29.24 since the bid, reflecting concerns that the proposed marriage would turn into a complicated mess that would enable Google to grow even stronger.
Yahoo Chief Executive Jerry Yang remained convinced that the company he started in a Silicon Valley trailer 14 years ago, was worth more than the money Microsoft had offered.
Now he may only have a few months to convince Wall Street that his rebuff of Microsoft's takeover bid was a smart move - and if he can't, analysts won't be surprised if Yang is either replaced as CEO or forced to consider accepting a lower offer if Microsoft comes knocking at his door again.
'This squarely puts the pressure on Jerry Yang to deliver results and shareholder value,' Standard & Poor's equity analyst Scott Kessler said. 'You are going to see a lot of shareholders just throwing in the towel because they are going to realize it's going to take awhile for the stock to get back to where it was Friday.'
In a posting Sunday night on Yahoo's blog, Yang welcomed the added pressure. 'We know the spotlight will probably stay on us for a while,' Yang wrote. 'That's fine - we have a clear path ahead and momentum to build on.' He added the Microsoft saga had turned Yahoo into 'a stronger, more focused company with an even greater sense of purpose.'
Yahoo shares finished last week at $28.67, slightly less than the $29.40 per share that Microsoft was offering before Chief Executive Steve Ballmer agreed to raise the offer to $33 per share in a last-ditch effort to get a deal done.
Disillusioned shareholders are bound to question whether the rejection of Microsoft's sweetened offer was driven more by emotion and ego than sound business sense.
'Clearly there's frustration,' said Darren Chervitz, co-manager of the Jacob Internet Fund, which owns Yahoo stock. 'I am not even sure if Yahoo cares about its shareholders because they didn't show much regard for shareholders' best interests in this process.'
In his blog posting, Yang defended the board's handling of the Microsoft bid and branded some of the criticism as 'a lot of nonsense and misinformation.'
'We clearly indicated to Microsoft that we were open to a transaction but only if it were on terms that fully recognized the value of Yahoo and was in the best interests of our stockholders,' Yang wrote.
Accompanied by fellow Yahoo co-founder David Filo, Yang flew to Seattle on Saturday to inform Ballmer that the company wouldn't sell for less than $37 per share - a price that Yahoo's stock hasn't reached since January 2006.