From the New York Times, Andrew Ross Sorkin and Miguel Helft - Microsoft said Saturday that it was abandoning its blockbuster bid to acquire Yahoo after the two companies could not agree on a price. At the meeting, which also included Yahoo’s other co-founder, David Filo, and Kevin Johnson of Microsoft, Mr. Ballmer increased Microsoft’s offer to $33 a share, but Mr. Yang said Yahoo would not sell for less than $37 a share, this person said. More updates to follow.

Update 1: Here's an excerpt from the text of Ballmer's letter to Jerry Yang after the talks broke down. In our conversations this week, we conveyed our willingness to raise our offer to $33.00 per share, reflecting again our belief in this collective opportunity. This increase would have added approximately another $5 billion of value to your shareholders, compared to the current value of our initial offer. It also would have reflected a premium of over 70 percent compared to the price at which your stock closed on January 31. Yet it has proven insufficient, as your final position insisted on Microsoft paying yet another $5 billion or more, or at least another $4 per share above our $33.00 offer. .... Accordingly, your apparent plan to pursue such an arrangement in the event of a proxy contest or exchange offer leads me to the firm decision not to pursue such a path. Instead, I hereby formally withdraw Microsoft’s proposal to acquire Yahoo!. I still believe even today that our offer remains the only alternative put forward that provides your stockholders full and fair value for their shares. By failing to reach an agreement with us, you and your stockholders have left significant value on the table.

Well, that's the end of that, at least for now. Until the next Yahoo share holder meet. Which is going to be very, very interesting, to say the least. Because Yahoo shares are now going to tank spectacularly, and Jerry Yang and his Yahoos will have a lot of explaining to do, as to why they rejected a $33 bid from Steve Ballmer.

Update 2: The heat is on. CNet News reports that Yahoo! Inc.'s two largest institutional investors, part of The Capital Group Companies, who own a combined 16.5 percent stake in Yahoo, are fuming at the rejection. The two investors were willing to accept an offer of $34 a share, the source noted. Microsoft was offering an increased bid of $33. "Yahoo overplayed its hand," said the source. "If Yahoo's two largest investors are willing to take $34 and Microsoft is willing to give $33, it's a lot closer than Yahoo's $37 (a share)."

And this meme, that Jerry Yang might just have made a mistake at this meeting, is reinforced by some more details of the way events played out, according to the Wall Street Journal. Mr. Ballmer and Mr. Yang had met in person on Wednesday in Palo Alto, Calif., not far from Yahoo's headquarters, the people familiar with the matter say. At that meeting, which took place at Yahoo's law firm, Mr. Yang signaled that Yahoo could accept less than $40 a share. On Saturday, Mr. Yang said a deal was possible at $37 a share, the people say. People close to Yahoo said that Microsoft indicated at that Wednesday meeting it could raise its bid per share a "couple" or a "few" dollars. But Yahoo only learned that Microsoft was willing to offer $33 per share specifically in Mr. Ballmer's letter to Mr. Yang Saturday, the people said. "We did not know what the offer was," said one person close to Yahoo.

What happened probably was that Yang expected that coming down to $37 would buy him some more time, with Microsoft increasing a few dollars more, and everyone hoping to find some more common ground in the next round of meetings. Instead, Ballmer backed off, and Yang was left holding the bag, and he'll have the unenviable job of explaining to share holders the $10 to $15 difference between the reality of Yahoo's current share price, and what it could have been, had the offer been accepted...