After not being able to reach an agreement on the price and other terms, the negotiation fell apart and Microsoft is now withdrawing its offer to buy Yahoo! (Reportedly, Microsoft’s final offer was $33 a share while Yahoo wanted at least $37.) See Microsoft’s official press release here. Yahoo’s official response is here.

Personally this is the outcome that I’ve wanted to see the most — Microsoft leaves Yahoo alone and Yahoo can remain an independent company. However, this is probably not the end of all this. Yahoo’s share price is sure to drop comes Monday. Microsoft can either buy them in the open market or makes another (and lower) offer later on. I, for one, have never really seen why Microsoft really needs Yahoo or Yahoo is better off with them. But a lot of people seem to think so and it’s hard to imagine that Microsoft is walking away this easily…

Let’s wait and see what happens… Now the acquisition threat is gone (temporarily), would Yahoo still outsource search advertising to Google? Will Microsoft come back with another offer later on? Boy, the suspense….

Updated: NYTimes.com’s Dealbook has a very good chronology here.