Yahoo questions Microsoft's integrity in deal

NEW YORK/SAN FRANCISCO, USA: Yahoo Inc on Monday sought to rally shareholder support in the face of a proxy battle with billionaire Carl Icahn, saying the activist investor had an "ill-defined plan" for the future of the Internet company.

Yahoo detailed its rationale for rejecting a $47.5 billion takeover offer by Microsoft Corp, questioning whether the software maker was ever serious about a full-scale merger in a filing with the U.S. Securities and Exchange Commission.

"The record casts doubt on whether Microsoft was ever committed to a whole-company transaction," the filing states.

Microsoft spokeswoman Jamie Moser fired back at Yahoo's allegations that the software giant was not earnest in pursuing the deal: "This is simply revisionist history," she said.

Icahn is running a slate of directors to replace Yahoo's board and has called for the removal of Chief Executive Jerry Yang ahead of the company's annual shareholder meeting to be held in Silicon Valley on Aug. 1.

The activist shareholder has said the company should still offer to sell itself, though Microsoft has said it is no longer interested in a full buyout.

"Icahn misrepresents the manner in which we negotiated with Microsoft," Yahoo said in an investor presentation it plans to make at the meeting.

"Our board remains the best and most qualified group to maximize value for Yahoo stockholders."

The company struck a similar tone in a letter to shareholders last week.

Several major Yahoo investors said on Friday they are not sure whether they will side with Icahn in his proxy fight, including Legg Mason Capital Management, its third-largest institutional shareholder.

Earlier this month, Yahoo rejected an alternate Microsoft proposal to buy its search business and a 16 per cent stake in the company for $9 billion, plus annual advertising payments.

"Microsoft proposed (a) last-minute 'hybrid' search-only structure, which does not benefit Yahoo financially or strategically and is based on flawed assumptions," Yahoo revealed in its filing on Monday.

Instead Yahoo reached a nonexclusive pact with larger rival Google Inc on search advertising. Yahoo says that the deal will add as much as $450 million in operating cash flow within the first year and allow it to build other money-generating partnerships as well.

Youssef Squali, an analyst with brokerage Jefferies & Co, sided with Yahoo in many of its arguments, but said the most likely outcome at the annual meeting was that investors would elect some of Icahn's board nominees to pressure the company.

"We believe that shareholders may want to confer a handful of board seats to Icahn's slate in order to maintain the sense of urgency and accountability to the current board," he said.

Yahoo shares fell 2.9 per cent to $20.72. The stock is down sharply since Microsoft withdrew its offer to buy Yahoo or to strike a partial deal to invest in it and buy its web search arm.

It now trades less than $2 above the $19.18 level where it stood before Microsoft's original bid.

The stock has fallen from a high near $30 in February -- when expectations were high that Yahoo would eventually accept Microsoft's Jan. 31 offer of $31 per share in cash and stock. Microsoft withdrew its offer to buy the company in early May.