SAN FRANCISCO — Microsoft Corp. on Saturday yanked a $42-billion takeover offer for Yahoo Inc. that would have reordered the landscape of the Web after the companies failed to agree on how much the Internet pioneer was worth.
The breakdown, which came shortly after their chief executives met in Seattle, marked a dramatic reversal of mood from just a day earlier. The companies had finally engaged in talks about the 3-month-old offer and, after Microsoft said it would add billions of dollars more to the deal, appeared closer than ever to combining two giants of online services and advertising.
"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," Chief Executive Steve Ballmer said in a statement.
The Redmond, Wash., software behemoth's executives said they remained determined to make the company a major force in Web advertising through internal development and other alliances or acquisitions.
Microsoft, which makes the Windows operating system and Office productivity programs, has pursued Yahoo for more than a year as its costly efforts to catch up to Google Inc. in the booming market for Web advertising have withered.
But despite a widening gap in that race between Google and perennial runner-up Yahoo, Yahoo's founders said they wanted to soldier on as an independent company.
They do plan to seek help. The Sunnyvale, Calif., company plans to pursue an advertising partnership with Google, according to people familiar with the talks.
Although antitrust regulators expressed concerns, Yahoo and Google were buoyed by the results of a two-week test in which Google placed its search-related ads, which are the industry's most profitable, alongside some of Yahoo's Web search results.
Google representatives could not be reached for comment. In a statement issued Saturday night, Yahoo showed no regret about not joining Microsoft.
"This process has underscored our unique and valuable strategic position," said Jerry Yang, Yahoo's chief executive and co-founder. "With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus all of our energies on executing the most important transition in our history."
The withdrawal didn't end all possibility that the two companies could unite. Analysts said Microsoft might be hoping that Yahoo's stock tanks enough that its management team comes back to the bargaining table willing to sell for less.
