July 14, 2008

Microsoft and Icahn Rebuffed By Yahoo

By Michael J. de la Merced

Yahoo has rejected a renewed proposal by Microsoft to buy its Internet search business, this time under a plan that would have left the rest of Yahoo in the hands of the investor Carl Icahn.

The proposal was made Friday evening by Icahn and Microsoft's chief executive, Steven Ballmer, and rejected over the weekend by Yahoo, which called Icahn and Microsoft an "odd and opportunistic alliance."

The new approach, and Yahoo's response, could escalate the level of animosity between the parties, two months after Microsoft withdrew a $47.5 billion takeover offer.

Microsoft had said last week that it would be open to making another offer to buy part or all of Yahoo if its board were ousted. Icahn, who holds about 5 percent of Yahoo shares, is waging a campaign to unseat Yahoo's board.

Icahn and Ballmer gave Yahoo 24 hours to make a decision, Yahoo said in a statement. After a meeting of four to five hours with its financial and legal advisers, Yahoo's board decided to reject the offer.

"It is ludicrous to think that our board could accept such a proposal," the Yahoo chairman, Roy Bostock, said.

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

Yahoo reiterated that it was open to a sale of the whole company at $33 a share, a price that Microsoft had once offered but in recent weeks has spurned.

"Yahoo's board points out that a transaction to acquire the whole company would be much more straightforward and involve far less risk than the new proposal or any similar alternative," Yahoo said in its statement on Saturday.

Nonetheless, the company also said it would accept a sale of its search business, but on better terms than the ones Microsoft was now offering.

A spokeswoman for Microsoft declined to comment.

Yahoo has entered a search advertising partnership with Google, which it could break by paying a fee. The company's persistent rejection of Microsoft's advances raises the pressure on Yahoo's chief executive, Jerry Yang, to show that he can improve the company's performance.

Yahoo said the proposal by Icahn and Microsoft contained "a number of improvements" from Microsoft's previous effort to buy Yahoo's search business for $1 billion and to take a 16 percent stake in the company for an additional $8 billion.

But it criticized some apparent aspects of the plan, like a move to sell Yahoo's Asian operations.

"The board believes Microsoft and Mr. Icahn are overstating the value their search and restructuring proposal would deliver to Yahoo stockholders and are substantially understating the risks," Yahoo said in its statement. "Yahoo noted that a transaction that would separate the company's search and display businesses is an undertaking of great complexity."

Originally published by The New York Times Media Group.

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