Yahoo shares fall 17 percent after Microsoft withdraws bid

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."

Despite such negative sentiment, Yahoo shares are unlikely to immediately 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.

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.

To win the faith of shareholders, Yang will have to execute a turnaround plan that he began drawing up nearly a year ago after he replaced Terry Semel as CEO amid shareholder angst about the company's financial malaise.

Ballmer also will be under the gun to prove he can come up with another way to challenge Google's dominance of the Internet's lucrative search and advertising markets.

The unsolicited bid was widely seen as Ballmer's admission that Microsoft needed Yahoo's help to upgrade its unprofitable Internet division.

Analysts now expect Ballmer to use the money he had earmarked for the Yahoo acquisition to explore other possible deals with large Internet companies like Time Warner Inc.'s AOL and News Corp.'s MySpace and promising startups like Facebook Inc. and LinkedIn Corp. Microsoft already owns a 1.6 percent in Facebook, the second-largest social network behind MySpace.

But Ballmer is unlikely to be under as much duress as Yang, 39, who has promised that Yahoo's development of a more sophisticated and far-flung Internet advertising platform will produce net revenue growth of at least 25 percent in 2009 and 2010.

That would be a dramatic improvement, considering that Yahoo's revenue rose by 12 percent last year and is expected to grow at about the same pace this year.