Redmond withdraws acquisition offer.
Microsoft has abandoned its efforts to acquire Yahoo.
Chief executive Steve Ballmer sent a letter to Jerry Yang on Saturday afternoon informing the Yahoo chief that Microsoft was withdrawing its offer to acquire the firm for US$42.3bn.
"I am disappointed that Yahoo has not moved towards accepting our offer," Ballmer told Yang.
"I first called you with our offer on 31 January because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers, and advertisers with greater innovation and choice in the marketplace."
Microsoft launched the offer in early February, upping the price when Yahoo rejected the terms and offering the company a deadline to avoid a hostile takeover bid.
Yahoo rejected the ultimatum and undertook a plan to outsource its search ads to Google in order to stave off Microsoft.
Ballmer claimed that the Google deal was of "particular concern" owing to the regulatory issues and marketplace consolidation to which it would lead.
"This would also effectively enable Google to set prices for key search terms on its and Yahoo's search platforms and, in the process, raise prices charged to advertisers on Yahoo," he wrote.
"In addition to whatever resulting legal problems, this seems unwise from a business perspective unless one simply wishes to use this as a vehicle to exit the paid search business in favour of Google."
Shortly after Ballmer's letter was made public, Yahoo issued a statement of its own claiming victory and vowing to continue its rebuilding process.
"I am incredibly proud of the way our team has come together over the past three months," said Yang.
"With the distraction of Microsoft's unsolicited proposal now behind us, we will be able to focus on executing the most important transition in our history so that we can maximise our potential to the benefit of our shareholders, employees, partners and users."