Microsoft Corp. and Carl Icahn said Monday that their joint proposal to buy Yahoo Inc.'s online search business would have guaranteed the Internet giant more than $19 billion in revenue during the next 10 years, and they attacked Yahoo for allegedly mischaracterizing the deal it rejected over the weekend.
Analysts and participants on both sides said they expected more jockeying and proposed deals in the coming weeks before Yahoo's annual meeting on Aug. 1, when the proxy campaign should be decided. Dissident Yahoo investor Icahn and a slate of nominees are trying to unseat Yahoo's board.
"It brings all the parties one step closer to the actual deal, although this is not likely to be the last episode in this ongoing saga," analyst Youssef Squali of Jefferies & Co. wrote to clients.
Microsoft said the offer it made with Icahn would have given $1 billion to the Sunnyvale, Calif., company immediately, followed by five years of $2.3 billion in guaranteed annual revenue from search advertising and another five years of $1.6 billion in minimum annual revenue if Yahoo were to extend the deal.
In spurning the offer late Saturday, Yahoo faulted the amount of money, which is higher than in an earlier bid to take control of Yahoo's search system, along with what it said was a 24-hour deadline Microsoft had given it to accept the deal. Yahoo also said the deal was conditioned on the board changing hands.
Yahoo shares fell $1 to $22.57.
Some Yahoo investors criticized the new bid as a ploy that Microsoft knew would be rejected. They said it was designed more to influence the looming proxy fight over control of Yahoo's board.
But Microsoft said in a statement Monday that its proposal "did not include changes to Yahoo's governance."
If that's literally true, people close to Yahoo said, it's only because the discussion of that point had been tabled temporarily as Yahoo focused on the economic terms, which it didn't approve.
Microsoft's claim was undercut by Icahn, who issued a separate proxy filing with comments that formally nominated nine candidates for directors' seats whom he had identified earlier. He noted that composition of the board was one point of the deal.
"Yahoo tells you in their press release that a condition of the deal was the immediate replacement of the current board and removal of top management," Icahn wrote. "Yahoo neglected to mention we were willing to discuss keeping a number of the current board members and Jerry Yang as Chief Yahoo."
The governance issue was especially relevant because, if ousted, the current management wouldn't have been able to make sure that Yahoo performed well enough to receive the guaranteed payments. In the deal Microsoft and Icahn proposed, the payouts are contingent upon Yahoo keeping traffic to its home page steady.
Microsoft initially proposed buying all of Yahoo for $31 a share, or $44.6 billion, but it walked away as Yahoo held out for $37 a share.
Yahoo now says it would sell at $33, the highest level floated by Microsoft.
The bright side of the brouhaha, Squali said, was that it demonstrated that Microsoft was clearly still interested and willing to offer more, while Yahoo was willing to consider alternatives including a sale of its search business.