Proxy Battle? Yahoo Rejects Latest Microsoft, Icahn Deal

SAN FRANCISCO — Yahoo on Saturday rejected a proposal to sell its search business to Microsoft Corp and hand over the remainder of the company to activist investor Carl Icahn.

Yahoo said in a statement it received the joint proposal from Microsoft and Icahn on Friday evening and was given less than 24 hours to accept. It said Microsoft and Icahn made clear they were unwilling to negotiate the fundamental terms, which include the immediate replacement of Yahoo’s board and removal of top management.

The company said the “take it or leave it” deal that was offered would also preclude a potential sale of all of Yahoo “for a full and fair price, including a control premium.”

“This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo’s stockholders in mind,” Yahoo Chairman Roy Bostock said in the statement.

“Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo stockholders,” Bostock said.

The move comes a few weeks before Yahoo’s annual meeting on August 1, when Icahn is seeking to oust Chief Executive Jerry Yang and replace the nine-member board with his own slate of directors. Icahn owns nearly 5 percent of Yahoo shares.

Microsoft, which has been embroiled in on-again, off-again deal talks with Yahoo for six months, has said it no longer wants to negotiate with Yang’s team, but that it is willing to resume talks if a new management is in place on August 1.

Yahoo did not detail the financial returns of the new proposal from Microsoft and Icahn, saying only that it was an improvement over an offer the software maker made in June but still carried less financial value and more risk than Yahoo’s current search advertising deal with Google Inc.

Yahoo had signed the deal with Google in June and said it was expected to generate $250 million to $450 million of incremental cash flow for the first 12 months after implementation.

The AllthingsD blog quoted sources as saying the new Microsoft offer included a $20 billion advertising search revenue guarantee over 10 years, as well as other “small improvements” on the previous proposal.”


A deal to separate Yahoo’s search and display businesses was an undertaking of great complexity, the company said, and could take up to one year to obtain regulatory approval.

It would be much more straightforward and less risky to sell all of Yahoo to Microsoft, and such a deal could be negotiated and executed before August 1, Yahoo said.

But it added that Microsoft had again rejected its repeated offer to sell Yahoo for at least $33 per share. Yahoo, whose shares are trading at around $23.50, said Microsoft also refused to negotiate an improved search-only transaction.

The company said the revenue guarantees suggested by Microsoft were conditional and subject to reduction, and were “well below” the search revenue that Yahoo was expected to generate on its own and with Google.

It also said other components of the proposal that Icahn and Microsoft put forward, such as spinning off Yahoo’s Asian assets, could be undertaken by Yahoo on its own and that its board continued to evaluate these measures.

Yahoo said it was ironic that Icahn, who had previously urged the company not to sell its search business to Microsoft, was now supporting a proposal to do exactly that.

But sources familiar with the matter told Reuters earlier that Icahn would support a partial deal with Microsoft if it guaranteed revenue of at least $2.5 billion a year to Yahoo.

Bostock called it “completely absurd and irresponsible” of Microsoft not to engage with Yahoo’s management as it would be a very complex thing to do to hive off half the company’s business and integrate it into the software maker.

“While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders,” Bostock said.

Microsoft and Icahn were not available for comment.

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