San Francisco — Yahoo Inc. late Saturday night irritably rejected a “ludicrous” joint takeover proposal from Microsoft Corp. and billionaire investor Carl Icahn that called for a restructuring and the sale of Yahoo’s search business to Microsoft.
Microsoft and corporate raider Carl Icahn, who are bent on overthrowing the struggling Internet search pioneer’s board, seeking to break up the Internet Company, saying they were trying to “coerce” officials into selling assets.
The Internet Company that had opposed Microsoft’s unsolicited takeover bid for months has now suggested that its suitor make an offer to acquire all of Yahoo.
The proposal put forward Friday evening, according to a Yahoo statement, Yahoo’s current board and top management would be replaced. Microsoft would buy Yahoo’s search business and leave Icahn with the rest of the Sunnyvale, California-based company, Yahoo said.
Yahoo objected to being given only 24 hours to consider the offer and there being no opportunity to negotiate the terms of the deal.
“It is ludicrous to think that our board would accept such a proposal.”
“Carl Icahn and Microsoft presented us with a ‘take it or leave it’ proposal,” Chairman Roy Bostock said in a statement. “It is ludicrous to think that our board could accept such a proposal. We will not be bludgeoned into a deal that is not in the best interests of our stockholders.”
The board said that it declined the offer because its recent search deal with Google is financially better and less risky than Microsoft/Icahn proposal and because the proposal precluded a potential sale of the entire company for a “full and fair price.” The board also objected to the proposal’s plan to immediately replace Yahoo’s current board and top management team.
“This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!’s stockholders in mind,” said Roy Bostock, chairman of Yahoo, in a statement. “Undoubtedly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders. Yahoo’s Board of Directors will not allow that to happen. Yahoo!’s Board remains open to any transaction that delivers full value to our stockholders — we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor.”
The pronouncement steps up pressure on Yahoo Chief Executive Officer Jerry Yang to prove his substitute deal, a partnership with Google Inc., can deliver better returns. Icahn has proposed a set of directors and is challenging Yang for control of the board at an Aug. 1 meeting.
Yahoo, owner of the No. 2 Web search engine after Google, said it was given 24 hours to weigh the latest proposal, made Friday evening. Some of the ideas, including spinning off the Asian investment assets and returning cash to shareholders, are items the board is already considering.
The move comes just weeks before Yahoo’s annual meeting on August 1, when Icahn is attempting 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 involved 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.
“While this type of inconsistent and impulsive behavior is consistent with what we have come to expect from Microsoft, we will not be forced into a deal that is not in the best interests of our stockholders.”
US billionaire Icahn, who has collected a stake in Yahoo and accuses the board of botching earlier takeover talks with Microsoft, has been trying to convince shareholders to back his slate at a vote during an August 1 annual meeting.
Yahoo proposed to sell the entire company to Microsoft for at least $33 per share, or to negotiate an improved search only transaction. Microsoft rejected both offers, according to Yahoo.
Another aspect of the Microsoft/Icahn proposal that was disagreeable to Yahoo, according to the board’s statement, was that it called for Yahoo to sell its algorithmic search business and related strategic and valuable intellectual property portfolio for no incremental consideration.
“Microsoft and Icahn are attempting to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo! stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote,” Bostock said.
Yahoo did not specify 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.
Yahoo “has shown no flexibility in separating the search engine from the rest of the company,” Andrew Frank, an analyst at industry researcher Gartner Inc. in New York, said today in an interview. “Microsoft is sincere in that it wants to make a deal and Yahoo sincerely thinks it is undervalued.”
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.
Yahoo, which closed at $23.57 July 11, has dropped 10 percent since June 11, the day before Microsoft said it would end attempts at a transaction. Microsoft fell 20 cents to $25.25 July 11 in Nasdaq Stock Market trading.
Icahn is attempting to build momentum ahead of the Yahoo shareholder meeting next month, intending to replace Yahoo’s board with nine nominees including himself. Icahn has already won backing from holders including T. Boone Pickens, chairman of BP Capital LLC, and hedge-fund manager John Paulson.
“It is hard to gauge the loyalty of the shareholders at large to the board and their frustration that Yahoo has not availed itself of any offers,” Gartner’s Frank said. “The next step will be the August board meeting, and we will have to wait to see what kind of theatrics go on.”
Microsoft and Icahn were not available for comment.