Microsoft scraps proposal to buy Yahoo!

Microsoft has withdrawn its $44.6bn (£22.6bn) bid to acquire Yahoo! after the two failed to agree an acceptable price.

Steve Ballmer, the Microsoft chief executive officer, revealed the software giant's surprise decision in a letter to Yahoo! chief executive Jerry Yang.

In the letter he said that Microsoft continued to believe that its proposed acquisition made sense for Microsoft, Yahoo! and the market as a whole. He said Microsoft's goal in pursuing a combination with Yahoo! was to provide greater choice and innovation in the marketplace and create real value for respective stockholders and staff.

Ballmer indicated that Microsoft's decision to walk had not been an easy one. Last week it had looked as if it might raise its offer again, but he said as Yahoo! had not moved toward accepting its offer it was in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw its proposal.

"We have a talented team in place and a compelling plan to grow our business through innovative new services and strategic transactions with other business partners. While Yahoo! would have accelerated our strategy, I am confident that we can continue to move forward toward our goals," Ballmer said.

Kevin Johnson, Microsoft president for platforms and services, said: "We are investing heavily in new tools and Web experiences, we have dramatically improved our search performance and advertiser satisfaction, and we will continue to build our scale through organic growth and partnerships."