Microhoo! Yahoo! has terminated all acquisition talks with Microsoft, today saying Microsoft was only interested in the internet provider's search business. Yahoo! shares fell 10 per cent today to $23.52, from yesterday's closing price of $26.52.

The beleaguered company is hitching its fortunes to the Google juggernaut with a search, advertising and IM deal. Google said Thursday it's providing Yahoo! access to its AdSense service in the US and Canada. Also, the companies will work on interoperability between their competing IM systems.

Google stressed this is not a merger, won't take out any competitors, increase Google's share of search traffic or prevent Yahoo! from making similar arrangements with others. Got that, US and EU regulators? Good.

In a statement today, Yahoo! said all talks with Microsoft over acquisition have been concluded following numerous meetings between both sides. Attending the meeting from Yahoo!'s side was chairman Roy Bostock and other independent board members.

The catalyst for the break up was a June 8th meeting during which Microsoft "stated unequivocally" it was not interested in purchasing the entire company "even at the price range previously suggested". Microsoft instead said it remained interested in buying Yahoo!'s search business only, as it stated last month.

"Such a transaction would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo! stockholders," Yahoo! said.

Yahoo! thinks the online advertising industry will grow from $40bn last year to $75bn in 2010. "The company believes it has the right assets, strategic plan, board of directors and management team to capitalize on this growth opportunity," Yahoo! said.

Microsoft said in a statement its offer for the search business is still on the table. "This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers," Microsoft said.

Microsoft's opening shot on January 31 was $31 a share, about $44.6bn. Microsoft boss Steve Ballmer last month verbally offered $33 a share - worth another $5bn - to Yahoo! founders Jerry Yang and David Filo. They held out for $37 a share, giving Ballmer his opportunity to walk away from the table.

Yahoo!'s “all or nothing” attitude is likely to inflame further gazillionaire greenmailer Carl Icahn, who is waging a proxy war to depose the incumbent board. Class action suits also loom, with investors seeking to overturn generous pay-outs to staff who leave if the company is acquired, and remove other poison pills in place to fend off hostile takeover.

In early court skirmishes, Yahoo! documents released to two angry Detroit pension funds reveal that the company declined an offer from Microsoft in January 2007 worth $40 a share. The funds complain of the failure of fiduciary responsibility. Icahn is muttering about holding the board personally responsible for letting Microsoft slip through.

This will get even messier.

We gotta get out of this place

Two more senior executives are leaving Yahoo!. Jeff Weiner, executive vice president of the network division, and Usama Fayyad, chief data officer and executive vice president of research and strategic data solutions, announced their departures today, the New York Times reports.

Weiner, recruited by former chief executive Terry Semel, lad various portal-based activities spanning mail, Flickr, Answers news and entertainment. Fayyad was in charge of data mining.

The follow in the footsteps, of course, of Semel and chief technology officer Farzad Nazem. More can be found here.®