Oct. 13 (Bloomberg) -- Microsoft Corp. Chief Executive Officer Steve Ballmer said he was disappointed Yahoo! Inc. refused a takeover offer that went as high as $47.5 billion back in May. Now he looks lucky.

Yahoo closed last week with a market value of $17 billion, so Ballmer's failure to seal the purchase saved the biggest software maker from a writedown that could have rivaled the industry's most vilified deals. Yahoo ended Oct. 10 at $12.29 on the Nasdaq Stock Market.

Ballmer ``might be the luckiest guy in the software industry,'' said analyst Charles Di Bona at Sanford C. Bernstein & Co. in New York. ``One of the guys here just looked at Yahoo's share price and said to me, `Nice miss by Microsoft.'''

In addition to escaping the financial blow, the 52-year-old CEO saved himself some goodwill from shareholders. Microsoft first offered $31 a share for Yahoo, the No. 2 Internet search engine operator, and went as high as $33 in last-ditch talks with Yahoo CEO Jerry Yang -- a price investors like Kim Caughey at Fort Pitt Capital Group Inc. decried as too high at the time.

``People would have been pretty ticked off if they had done a deal at $33 and then had to write down a large portion of it almost immediately,'' said Caughey, whose Pittsburgh-based firm owns Microsoft shares.

Microsoft rose $4, or 19 percent, to $25.50 at 4 p.m. on the Nasdaq Stock Market. Yahoo gained $1.20, or 9.8 percent, to $13.49.

Triggering Charge

The combination could have triggered one of the technology industry's biggest acquisition-related charges. The $124 billion combination of Time Warner Inc. and America Online Inc. in 2001 caused $100 billion in writedowns. This year, Sprint Nextel Corp. wrote down $29.7 billion of the $36 billion purchase of Nextel Communications Inc. and related companies.

Yahoo spokeswoman Tracy Schmaler didn't return calls seeking comment on the stock's decline.

Di Bona also credited Ballmer's unwillingness to ``do the deal at all costs'' for saving Redmond, Washington-based Microsoft from overpaying. When he scrapped the bid May 3, Ballmer said Yang had demanded $37.

Still, the deal's failure means Ballmer needs to find a way to fix Microsoft's Internet search business to replace the boost it would have gotten from Yahoo, Caughey said.

Not a Dime

Microsoft started the unsolicited bid, which would have been the largest takeover in the technology industry, with a letter to Yahoo's board Jan. 31. Early the next day, Ballmer went public.

Yahoo rejected the offer, saying it ``substantially'' undervalued the company. Yang argued the company's rank in the U.S. search market and its Asian operations warranted a higher bid. Yahoo put in place a severance plan that would compensate employees displaced by an acquirer.

On May 1, Ballmer told employees: ``I know exactly what I think Yahoo is worth to me. Exactly. I won't go a dime above.'' That week, he sat down for talks in Seattle with Yang and Yahoo co-founder David Filo. He offered $33, and said they demanded at least $37. Ballmer ended it.

``I am disappointed Yahoo has not moved toward accepting our offer,'' Ballmer wrote in a letter to Yang May 3. ``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.''

Yahoo Slides

Instead, Yahoo struck a deal to outsource some Internet ad sales to Google. The deal ran into opposition from advertisers, competitors and consumer advocates, and Oct. 3 the companies delayed the partnership while U.S. regulators investigate whether it hurts competition.

With its options diminishing, credit markets tightening and the economy cooling, Yahoo shares reached a five-year low.

Even if the deal had been completed, Microsoft probably would have included a clause that enabled it to renegotiate the price if Yahoo shares declined substantially, Di Bona said.

Yahoo shareholder Mithras Capital LP on Oct. 10 proposed the Internet company sell itself to Microsoft for $22 a share.

It's not clear Microsoft is interested. Microsoft spokesman Frank Shaw declined to comment last week. Chief Financial Officer Chris Liddell said in July and reiterated in September that Yahoo is a ``declining asset'' and the chances of a deal are ``negligible.''

If Microsoft does take another shot, Caughey expects Ballmer to wait for Yahoo's shares to decline even further.

She says she can't help but gloat.

``I usually don't look at Yahoo, but I saw it today at $14 and I thought, `Ha ha ha,''' Caughey said on Oct. 8. ``I imagine Steve Ballmer might be thinking the same thing.''

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

Last Updated: October 13, 2008 16:15 EDT