Yahoo Rejects Joint Proposal From Microsoft, Icahn

By Kyung Bok Cho

July 13 (Bloomberg) -- Yahoo! Inc., owner of the second-most popular search engine, rejected a restructuring proposal by Microsoft Corp. and billionaire investor Carl Icahn that would have included the sale of Yahoo's search business to Microsoft.

Yahoo's advertising agreement with Google Inc. offers ``superior financial value'' to the proposal from Microsoft and Icahn, the Sunnyvale, California-based company said in a Business Wire statement today.

Icahn has criticized Yahoo Chief Executive Officer Jerry Yang for failing to close a deal with Microsoft, the world's biggest software maker. Microsoft, which on May 3 withdrew an offer to buy Yahoo, said on July 7 it may renew talks for a deal if Icahn, who controls about 69 million Yahoo shares, succeeds in ousting Yang and his board.

``Carl Icahn and Microsoft presented us with a `take it or leave it' proposal,'' Chairman Roy Bostock said in the statement. ``It is ludicrous to think that our board could accept such a proposal. We will not be bludgeoned into a transaction that is not in the best interests of our stockholders.''

An outright acquisition of Yahoo would be much more ``straightforward,'' according to Yahoo's statement. The company's board ``believes a whole company transaction could be negotiated and executed'' before Aug. 1, it said.

`Odd and Opportunistic'

Yahoo shares closed at $23.57 on July 11 in Nasdaq Stock Market trading. The shares have climbed 1.3 percent this year. Microsoft, which fell 20 cents to $25.25 on Friday, has slipped 29 percent this year.

Yahoo said the proposal from Microsoft and Icahn was made on Friday evening and the company was given less than 24 hours to accept. Bostock called the alliance between Microsoft and the billionaire activist ``odd and opportunistic.''

His comment followed an interview in the Wall Street Journal last week in which CEO Yang accused Microsoft of wanting to disrupt the Web search company. He also told the newspaper that for Yahoo shareholders to trust Icahn would be ``a bad choice.''

Yahoo, which was co-founded more than a decade ago by Yang and David Filo, had reported eight straight quarters of profit declines before Microsoft's bid and is now relying on its biggest rival for growth.

Microsoft Chief Executive Officer Steve Ballmer initially offered about $44.6 billion for Yahoo. The Redmond, Washington- based company later raised that to $47.5 billion, only to walk away when Yahoo demanded more.

Icahn seeks to build momentum ahead of a Yahoo shareholder meeting that's scheduled for next month. The billionaire aims to replace Yahoo's board with nine nominees that include himself.

Yahoo-Google Pact

Yahoo ``is now moving toward a precipice,'' Icahn said in a July 8 statement. ``It is time for a change.''

Yahoo agreed last month to let Google, the owner of the most popular search engine, sell some of the advertisements it runs alongside Internet search results. The deal was struck after Yahoo's talks with Microsoft fell apart.

Federal regulators are expected to begin hearings next week on whether the ad accord between the two dominant Internet search companies is anti-competitive, Google Chief Executive Officer Eric Schmidt said on July 10.

Yahoo is trying to lure users at the expense of Google, which fields about three times the number of queries in the U.S. Yahoo said last week it is inviting outside developers to tinker with its Internet search software to lure more users.

Google, Yahoo and Microsoft all offer software that allows users to tweak their search engines.

Yahoo handled about 20.6 percent of U.S. Internet searches in May, more than twice Microsoft's search traffic, according to researcher ComScore Inc. Google, based in Mountain View, California, dominates searches, accounting for almost two-thirds.

To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net