Microsoft: Both sides in Yahoo / Icahn spat have it wrong

By Scott M. Fulton, III | Published July 14, 2008, 6:30 PM

What was already a two-way lack-of-meeting of the minds after Microsoft's last efforts to acquire all or part of Yahoo, has evolved into a colossal three-way misunderstanding, as evidenced by Microsoft's statement this afternoon.

In one of the more bizarre responses in a three-way merger deal fracas since the Viacom/Paramount/Blockbuster deal of the early 1990s, a Microsoft statement this afternoon -- ostensibly to refute some of the details described in a Yahoo statement early Sunday morning -- also manages to separate Microsoft's point of view from that of financier Carl Icahn. Specifically, the statement characterizes Icahn as exacerbating a deal that Microsoft was trying to put together at the request of Yahoo Chairman Roy Bostock, not the other way around.

"The enhanced proposal for an alternate search transaction that we submitted late Friday was submitted at the request of Yahoo Chairman Roy Bostock as a result of apparent attempts by Mr. Icahn [emphasis ours] to have Microsoft and Yahoo engage on a search transaction on terms Mr. Icahn believed Microsoft would be willing to accept and which Microsoft understands Mr. Icahn had discussed with Yahoo."

This new statement makes it appear as though Icahn and Yahoo were working out the terms and that Microsoft worked to meet their demands, in a move which, like the others before, ultimately failed. In his own statement this morning, Icahn said he tried to broker a deal that would enable Microsoft to purchase a chunk of Yahoo, which contained its search business but which also contained its more valuable Asian business assets, for a partial deal Icahn valued at $33 per share. Yahoo flatly refused that deal late Saturday night, Pacific coast time.

"Microsoft's proposal did not include changes to Yahoo's governance," reads Microsoft's statement this afternoon. "At the time Microsoft submitted its enhanced proposal, Microsoft asked that Yahoo confirm whether it would agree that the enhancements were sufficient to form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets. This discussion has been mischaracterized as a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations. Yahoo informed Microsoft on Saturday that it had rejected the proposal."

Yahoo's statement early Sunday morning included this: "The Microsoft/Icahn proposal would require the immediate replacement of the current Board and removal of the top management team at Yahoo. The Yahoo Board believes these moves would destabilize Yahoo for the up to the one year [sic] it would take to gain regulatory approval for this deal."

Strangely, Icahn's statement this morning agrees with neither Microsoft's nor Yahoo's presentation of the events, saying that the deal would mean changes to Yahoo's board, but that CEO Jerry Yang would stay on as "Chief Yahoo" (which may not necessarily have meant CEO).

"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, directing his statement to Yahoo shareholders. "Yahoo neglected to mention we were willing to discuss keeping a number of the current board members and Jerry Yang as Chief Yahoo."

Microsoft's statement today did not say whether it would discontinue attempts to acquire part of Yahoo, after being spurned once again over the weekend.