After months of playing cat and mouse, it appears the Microsoft-Yahoo merger is dead. Microsoft walked away from the Yahoo acquisition over the weekend, and Yahoo’s stock is feeling the impact. But is this really the end of the saga?

Microsoft CEO Steve Ballmer said he still believes the proposed acquisition made sense for both companies and the market as a whole. Microsoft’s goal in pursuing Yahoo, he said, was to provide greater choice and innovation in the marketplace and create real value for stockholders and employees.

“Despite our best efforts, including raising our bid by roughly $5 billion, Yahoo has not moved toward accepting our offer,” Ballmer said. “After careful consideration, we believe the economics demanded by Yahoo do not make sense for us, and it is in the best interests of Microsoft stockholders, employees and other stakeholders to withdraw our proposal.”

Yahoo: Still Not Enough!

The news didn’t seem to faze Yahoo. Chairman Roy Bostock responded with the same message he has been sending since Microsoft’s initial $44.6 billion bid: It’s still not enough. Even with the additional $5 billion offered, Bostock said Yahoo’s board and management believe Microsoft’s offer undervalues the company.

“Yahoo is profitable, growing and executing well on its strategic plan to capture the large opportunities in the relatively young online advertising market,” Bostock said. “Our solid results for the first quarter of 2008 and increased full year 2008 operating cash-flow outlook reflect the progress the company is making.”

Bostock pointed out that Yahoo has a refined strategy to drive new volume and yield, has reorganized to focus on its most promising products and services, has invested in innovations to revolutionize display advertising and close the competitive gap in search, and has enhanced expense and resource management for improved profitability.

Yahoo cofounder and CEO Jerry Yang said he is proud of…