Yahoo! defends Google deal to shareholders

[hariharan]

Yahoo!'s besieged board has written to shareholders to defend turning down a deal with Microsoft in favour of the search advertising pact it has since made with Google.

In the letter, co-signed by chairman Roy Bostock and chief executive and co-founder Jerry Yang, Yahoo! paints the rejected proposal in a dim light.

Microsoft's most recent proposal involved the software giant investing $7.73bn (£3.9bn) in Yahoo!, giving it a 16pc stake and effectively creating a floor for Yahoo's shares at $35.

The deal, as confirmed in the letter, involved Microsoft also buying Yahoo!'s search business for $1bn, and would have been worth $1bn a year to Yahoo! in operating revenues, compared with the additional $800m of revenues the company will eventually receive through its 10-year deal with Google.

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However, Mr Bostock and Mr Yang claim that while it may seem Microsoft had the better offer, it was actually more about what Microsoft could get out of Yahoo! rather than the other way around.

The board rejected the deal because they felt it would have made Yahoo! "dependent on Microsoft for all of our search business".

The letter - posted to investors prior to the company's annual meeting on August 1 - is aimed at highlighting the board's recent successes to encourage shareholders to stick with them rather than vote for board nominees proposed by activist investor Carl Icahn.

Yahoo! said Mr Icahn's proposals are "unlikely to bring added value to Yahoo!".