Steve Ballmer, chief executive of Microsoft, moved quickly yesterday to dismiss speculation that the software group may still be interested in a takeover of Yahoo!.

“We made an offer, we made another offer . . . We moved on. Acquisition is a thing of the past,” he told a business lunch in Sydney after Google pulled out of a search advertising partnership with Yahoo! this week.

Shares in Yahoo!, which had picked up on investor hopes that an acquisition was in the offing, fell sharply. At the close, the Nasdaq-listed shares stood at $12.20, down about 12.6 per cent.

Jerry Yang, chief executive of Yahoo!, had admitted he was open to a deal with Microsoft. Yahoo! rejected two bids from Microsoft, which offered $47.5 billion for the internet business this year. Mr Yang told the Web 2.0 Summit conference in San Francisco on Wednesday: “I would say that the best thing for Microsoft to do would be to buy Yahoo!. We remain open to everything but it has to make sense.”

His comments prompted analysts to conclude that some sort of deal with Microsoft might be back on, at a fraction of the May offer price. However, Mr Ballmer said: “It was clear that Yahoo! didn’t want to sell the business to us and we moved on.”

But the Microsoft chief left the door half open for a partnership on search, an area in which he has said that Microsoft needs to improve. Yahoo! is a distant second to Google in the search market but combining the power of MSN Live Search and Yahoo! search could give Google some competition. Mr Ballmer said: “I’m sure there are still some opportunities for some kind of partnership around search. Everybody needs a good competitor.” Mr Ballmer criticised search engines and said Microsoft saw an opportunity to “reinvent the whole darn thing”. He added that the average English language search was 2.2 words because users had worked out that “search engines are so dumb that if you tell them more they actually do a worse job”. He said: “If anybody thinks the future of search is going to look like the present search, that’s crazy.”

Yahoo! is making progress. It has launched SearchMonkey, which embeds selected search results into more elaborate packaging, and has also developed Boss (Build your Own Search Service), which allows third parties to repackage, reorder, and remix Yahoo! search results with revenue-sharing or Yahoo!-supplied advertising.

Microsoft attempted to buy Yahoo!’s search engine for $1 billion in the spring and when Yahoo! turned that down, Mr Yang turned to the Google partnership in an attempt to gain some much-needed revenue and placate shareholders. It was estimated that Yahoo! could have made up to $800 million a year from the Google partnership but advertisers feared it would lead to a rise in prices for search advertisements. When US antitrust regulators indicated they were against the deal, Google pulled out.

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