Steve Ballmer, Microsoft's chief executive, reopened the door to a deal with Yahoo! on its search business yesterday, but ruled out buying the struggling internet company.

His remarks, at the Microsoft shareholders' meeting, disappointed investors, who had hoped that an acquisition was back on after Jerry Yang said that he was stepping down as Yahoo!'s chief executive. Yahoo! shares were down almost 18 per cent in lunchtime trading at $9.48, wiping out yesterday's gains after the news of Mr Yang's decision. Microsoft shares also fell, down 3.7 per cent to $18.96.

Mr Ballmer said: “We are done with all acquisitions, discussions with Yahoo!. I've said that a bunch of times. Somehow, some people have gotten confused, nonetheless ... But we did our best. We thought we had something that made sense. Didn't make sense to them. We've moved on.”

He said that if Yahoo! were interested in a search deal, Microsoft would be. “I think it is an interesting possibility to look at a search collaboration with Yahoo!, as we had proposed last summer. There's no active discussion on that front. But we'd be very open to it.”

Microsoft withdrew its $47.5billion buyout offer for Yahoo! in May after Mr Yang and his board rejected the bid as too low. The software company then offered to buy Yahoo!'s search business for $1billion, but Yahoo! instead signed a search advertising deal with Google. That deal has since fallen apart, after opposition from American antitrust regulators, who were concerned about a partnership between the web's two biggest search companies.

Yahoo! is unlikely to get the same offer again from Microsoft for its search business, which has about 20 per cent of the market. The economic downturn has hit online advertising revenue, particularly in the display ad market, one of Yahoo!'s strengths.

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