Yahoo nixes Icahn offer

Microsoft proposal places mogul on top

Microsoft has made another offer Yahoo could refuse, this one involving Carl Icahn. Under Friday’s proposal, Microsoft would acquire Yahoo’s search biz, and Icahn, a shareholder who has been campaigning to oust Yahoo’s board, would take over the rest of the company. The proposal was said to guarantee $2.3 billion in annual revenue from search advertising for five years, with the option to extend another five.

Under Friday’s proposal, Microsoft would acquire Yahoo’s search biz, and Icahn, a shareholder who has been campaigning to oust Yahoo’s board, would take over the rest of the company. Yahoo, which said it was given 24 hours to respond, swiftly rejected the proposal in sharp and pointed terms, questioning the motivation behind this latest offer.

“It is ludicrous to think that our board could accept such a proposal,” Yahoo chairman Roy Bostock said in a statement outlining four major objections, starting with its existing Google outsourcing deal.

Netco, which called the Google deal superior financially and less risky than the Microsoft/Icahn proposal, also objected to the fact the non-search portion of its biz would be overseen by Icahn’s slate of directors, “which has virtually no working knowledge of Yahoo’s businesses, and the fact its current board and top management team would be immediately replaced. It said the latter “would destabilize Yahoo for the up to one year it would take to gain regulatory approval for the deal.”

Yahoo’s outsourcing deal with search leader Google is also expected to draw regulatory scrutiny.

At the same time, Yahoo reiterated its interest in a sale to Microsoft at $33 per share — but that hasn’t been on the table for months. Yahoo topper Jerry Yang’s insistence on $37 per share prompted Microsoft topper Steve Ballmer to withdraw his $47.5 billion bid on May 3; since then he has shown little willingness to reopen takeover negotiations.

Indeed, last week Microsoft said it would be willing to do so if Yahoo’s current board is replaced (Daily Variety, July 8). Observers believe this latest offer was intended to turn up the heat on the board and drum up additional shareholder support for Icahn’s slate, up for election at Yahoo’s Aug. 1 shareholder meeting.

Bostock excoriated the “odd and opportunistic alliance” of Microsoft and Icahn as one that “has anything but the interests of Yahoo shareholders in mind.” He called Microsoft’s unwillingness to deal with, or even engage, Yahoo’s management on the latest offer “completely absurd and irresponsible given the complexity of the deal.”

Yahoo did acknowledge that Microsoft had sweetened the terms of its previous bid for online search biz in May. Microsoft had offered to buy Yahoo’s search operations for $1 billion and to spend another $8 billion to acquire a 16% stake in Yahoo’s remaining operations. However, Yahoo said it would still make it too dependent on Microsoft without delivering as much coin as the Google deal.

Yahoo’s stock crept back up last week after Microsoft’s public alliance with Icahn. Below $20 just before Microsoft made its initial bid in early January, its shares finished trading at $23.57 on Friday.

Icahn, who has been challenging corporate boards for more than two decades, owns a roughly 5% stake in Yahoo and hopes to make a profit by pushing the company’s stock price above $30.

Yahoo has estimated that it can boost its annual revenue by about $800 million by relying on Google’s superior technology to show some ads alongside the search results on its website.

A portfolio manager at Legg Mason, second-largest institutional shareholder of Yahoo, also called the bid “unappealing.” Robert Hagstrom said Legg Mason would prefer that Microsoft reenter negotiations to buy the entire company.

(Wire services contributed to this report.)

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