According to reports in The Globe and Mail, Yahoo co-founders Jerry Yang and David Filo flew to Seattle Saturday morning to meet personally with Microsoft's CEO Steve Ballmer and Kevin Johnson, who runs Microsoft's "unprofitable" online services division, says an unidentified person who was familiar with the talks but unauthorized to speak. However, a deal that satisfied both parties could not be settled.

Microsoft was willing to pay $47.5 billion, or $33 per share, up from the bid's current value of $29.40 per share, according to Ballmer's letter to Yang.

But Yahoo's board demanded at least $53 billion, or $37 per share, according to Ballmer. That would have been nearly double Yahoo's stock price of $19.18 at the time Microsoft first made its bid a little over three months ago.

It is certainly an understatement to say that Microsoft's decision to walk away from the offer has come as a surprise to many analysts who believed the software giant wanted to close the deal badly enough to pursue a hostile takeover.

However, analysts and investors still believe that if Yang - who became Yahoo's CEO 11 months ago - can't convince Wall Street that his snubbing of Microsoft's bid was a smart move, Yang will either be replaced as CEO or forced to consider accepting a lower offer if Microsoft comes knocking at his door again.

Yang, who remained steadfast on his demand for Microsoft to raise its offer, has projected that Yahoo's revenue will rise by 25 per cent in 2009 and 2010, fueled by an expanded Internet advertising network that's using more sophisticated tools to target consumers.

The Globe and Mail says "analysts haven't raised their forecasts to anywhere near Yang's predictions, reflecting doubts that may trigger a rebellion among Yahoo's shareholders" if management can't deliver on its promises.

Analysts believe that Ballmer will be in the hotseat as well to prove he can come up with another way to challenge Google's dominance of the Internet's lucrative search and advertising markets. It is believed the unsolicited bid was widely seen as Ballmer's admission that Microsoft needed Yahoo's help to evolve and expand its Internet division.