Yahoo suggests Microsoft should make new offer

Now that the ad deal with Google Inc. is off, Yahoo Inc. CEO Jerry Yang says his company is open to a new offer from Microsoft Corp.

“To this day, I believe the best thing for Microsoft to do is to buy Yahoo,” the Associated Press quoted Yang as saying late on Wednesday at the Web 2.0 summit in San Francisco.

Mountain View-based Google (NASDAQ: GOOG) said in its company blog Wednesday that it is ending its proposed advertising search deal with Sunnyvale-based Yahoo (NASDAQ:YHOO) in the face of opposition from the U.S. government.

David Drummond, Mountain View, Calif.-based Google’s chief legal officer and senior vice president for corporate development, wrote that after four months of review, “it’s clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle, but also damage to relationships with valued partners. That wouldn’t have been in the long-term interests of Google or our users, so we have decided to end the agreement.”

The companies said in June they were looking at a partnership that would let Yahoo display search ads sold by Google in exchange for a portion of the revenue. Critics of the deal said it would give Google too much control over online advertising.

Yahoo had figured deal would bring it between $250 million and $450 million in incremental operating cash flow in its first year and about $800 million in annual revenue.

Microsoft (NASDAQ:MSFT) offered $33 a share for Yahoo earlier this year, a price Yang spurned as undervaluing the company. The stock closed Wednesday at less than half that price at $13.92.

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