AP sources give inside look at Microsoft's raised Yahoo bid

Activist shareholder Eric Jackson thinks it was a bad idea to entrust a pivotal round of negotiations to two people with deep emotional ties to Yahoo. Yang, 39, and Filo, 41, started Yahoo in 1994 while graduate students at Stanford University.

The board's decision to let Yang and Filo handle the May 3 talks made them look like "a couple of kids who had been sent along with bad advice from their parents," said Jackson, who is trying to organize an effort to oust Yahoo's board.

The topic of how Microsoft would finance its sweetened bid didn't come up at that Saturday meeting, and it soon became a moot point. Around 4 p.m. that day, Ballmer called Yang to tell him Microsoft was withdrawing its bid.