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Microsoft, Yahoo drama heats up again

July 12, 2008 | 10:25 pm

In another bizarre twist in the ongoing saga involving Yahoo, the Internet giant said Saturday night that it had rejected a proposal by Microsoft and billionaire investor Carl Icahn to buy its search business.


In a statement, Yahoo said the proposal was made on Friday evening by Icahn and Microsoft CEO Steve Ballmer. Yahoo was given 24 hours to consider the proposal, the terms of which Microsoft and Icahn were unwilling to negotiate, the statement said. The company rejected the proposal after meeting with its financial and legal advisers.

The Yahoo board rejected the proposal on the basis of several factors, it said in a statement.

Among them: The proposal would preclude a potential sale of all of Yahoo; a search advertising partnership with Google is a better deal than selling to Microsoft; and the proposal required the immediate replacement of the board and the removal of Yahoo's management team.

"The Yahoo board believes these moves would destabilize Yahoo! for the up to the one year it would take to gain regulatory approval for this deal," the statement said.

Neither Microsoft nor Icahn could be reached for comment.

Last Monday, Microsoft said it would be open to making another run at buying part or all of Yahoo if Icahn succeeded in his quest to gain control of Yahoo and oust the board.

According to the proposal Friday, Microsoft would buy the search business and Icahn would assume control of the rest of the company. Yahoo chairman Roy Bostock said the proposal was not in the best interests of shareholders.

"It is ludicrous to think that our board could accept such a proposal," Bostock said in a statement. "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."

Yahoo underscored that it remains open to selling the whole company at $33 a share or a sale of its search business on better terms.

The proposal comes two months after Microsoft withdrew its $47.5-billion takeover offer for Yahoo. It then attempted to buy Yahoo's search business. But Yahoo elected to form a search advertising partnership with rival and market leader Google instead.

-- Jessica Guynn

Photo by Justin Lane / EPA