Yahoo shares fell by 15% on Monday after Microsoft withdrew its $46.5bn offer for the search giant.
The shares fell by $4.30 to $24.37, closing well below Microsoft's offer of $33 a share. However, the closing share price was still 27% higher than the $19.18 that shares were trading at before Microsoft made its bid public in February.
Microsoft raised its initial offer of $31 a share to $33, but Yahoo demanded $37 a share, which Microsoft was not willing to pay.
"In our conversations this week, we conveyed our willingness to raise our offer to $33 per share, reflecting again our belief in this collective opportunity," Microsoft's CEO, Steve Ballmer told Yahoo. "Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5bn or more, or at least another $4 per share above our $33 offer."
Microsoft had threatened a hostile takeover of Yahoo through a proxy battle but has decided against it and formally withdrawn its offer.
"From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company," said Yahoo chairman Roy Bostock.
Yahoo CEO Jerry Yang said that with the distraction of Microsoft's unsolicited proposal now behind it, the company would continue to focus on developing innovative web products.
But analysts said that Yahoo could face a shareholder backlash if it didn't come up with new products that raised its share price.
Forrester analyst Charlene Li said, "With the Microsoft acquisition threat fading, Yahoo has been given a reprieve but it must explain and execute on a strategy that supports its belief that the company is worth $37 a share, or face another round of acquisition attempts and shareholder revolt. Yahoo's three-pronged strategy of being the starting point, advertising platform for the web, and openness is sound but it has been muddled due to poor communication and tactical steps."