While a stock sell-off is never welcome news for any company, Wall Street's disenchantment comes at a particularly bad time for Yahoo and its board of directors.
Yahoo is trying to fend off a shareholder mutiny led by activist investor Carl Icahn, who has vowed to replace the company's board because of the way the directors handled the Microsoft negotiations.
But Icahn has been hoping to engineer a sale to Microsoft, so some shareholders may be reluctant to support his attempted coup unless he can demonstrate his slate of directors has a better turnaround plan than the current board.
Icahn did not return phone calls seeking comment Thursday.
The fate of Yahoo's board is scheduled to be determined at the company's Aug. 1 annual meeting.
Yahoo tried to persuade Microsoft to revive its last takeover offer of $47.5 billion, or $33 per share, but the software maker wasn't willing to bid that much again, according to statements from the two companies.
Microsoft Chief Executive Steve Ballmer had withdrawn an oral offer of $33 per share after Yahoo CEO Jerry Yang asked for $37 per share in a May 3 meeting at a Seattle airport.
Shortly after that breakdown, Microsoft tried to convince Yahoo to sell its online search operations instead.
But Yahoo concluded that its search engine - the Internet's second most popular behind Google - was too important to sell piecemeal.
Yahoo said Microsoft "unequivocally" rejected the notion of buying the entire company in a meeting held Sunday.
Without explaining its logic, Microsoft said it believed a deal involving Yahoo's search engine would have been more valuable to Yahoo than if it had bought the entire company at $33 per share.
Yahoo now has to find a way to minimize the damage to its stock, which dropped $2.63, or 10.1 percent, to finish Thursday at $23.52.
With Microsoft apparently out of the picture, Yahoo is turning to Google for help.
Hoping to boost its revenue, Yahoo is expected to announce a deal that would allow Google to sell some of the ads displayed alongside the search results on its Web site.
In a two-week trial completed in April, Google demonstrated its technology could generate higher revenue than Yahoo's own system.
Both Yahoo and Google declined to comment on a possible deal late Thursday.
