Yesterday saw one of Yahoo’s last major chances for a comeback from its steady decline as Google walked away from their major advertising deal just one hour away before a lawsuit was filed against it, with Google’s CEO Eric Schmidt stating that “[the company] concluded after a lot of soul-searching that it was not in our best interest to go through a lengthy and costly trial which we believe we ultimately would have won.”

Nevertheless, they chose not to, and this latest turn of events leaves Yahoo CEO Jerry Yang in a bit of a twist. The deal with Google originally came up as the fruit of talks the two companies had after Microsoft had made a hostile bid for Yahoo back in February. Google and Yahoo execs then had a series of talks on how to help Yahoo in retaining its independence, with the proposed ad deal being the culmination.

The plan backfired when the ad deal, which would have had Yahoo placing some Google ads on its website, came under scrutiny by the Department of Justice and anti-trust regulators, which feared for negative consequences the move may have had on the market. Their primary concern was that Yahoo would have become too reliant on Google’s ads, and would thus lose its independence.

The ironic part is that after the deal fell, Jerry Yang stated on Wednesday that his company was now open to an acquisition by Microsoft. Unfortunately for them, Microsoft isn’t buying any more.

Steve Ballmer, the CEO of Microsoft said at a business lunch in Sydney that the company had moved on after the offer was denied, but was still up for a potential partnership.

''We made an offer, we made another offer, and it was clear that Yahoo didn't want to sell the business to us and we moved on,'' Ballmer said. ''We are not interested in going back and re-looking at an acquisition. I don't know why they would be either, frankly. They turned us down at $33 a share.'' Yahoo’s shares were last rated at $13.96 at the New York Stock Exchange.

Yahoo was counting on the deal not only to give them a financial boost, but to placate investors who had been irked by the management’s decision to turn down the $47.5 billion deal.

Yahoo says it would have preferred to defend the deal in court, saying that ''Yahoo strongly believes we would have prevailed in court if the Department of Justice had filed a lawsuit,'' but unlike Yahoo, Google chose to step down even if they would have ultimately won, because of the negative media attention and lengthy trials that would have simply not made the deal worth it. After all, it was more or less a handout to Yahoo on Google’s part.

Yahoo is also now considering a merger with AOL, which is owned by Time-Warner, after being rejected by both Microsoft and Google.