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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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July 14, 2008 11:55 AM

Microsoft fires back, disputing Yahoo's account of weekend offer

Posted by Benjamin J. Romano

Yahoo had the stage itself on Sunday to tell the story of Microsoft's latest proposal, which it rejected. But Microsoft fired back this morning with its own account of the last-ditch deal effort that went down starting Thursday.

Update, 12:33 p.m.: Carl Icahn is also out with another letter to Yahoo shareholders disputing Yahoo's account.

In a statement, Microsoft disputed elements of Yahoo's account.

For starters, Microsoft says it submitted the new search-only proposal, late Friday, at the request of Yahoo Chairman Roy Bostock, "as a result of apparent attempts by Mr. Icahn 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!."

Here's the rest of the statement:

Specifically, on Thursday afternoon, July 10, Mr. Bostock called Steve Ballmer's office to arrange a call. On that subsequent call, Mr. Bostock told Mr. Ballmer that "with substantial guarantees on the table and an increase in the TAC (traffic acquisition cost) rate, there are the pillars of a search only deal to be done." Mr. Bostock encouraged Mr. Ballmer to submit a new proposal to Yahoo! for a search only deal reflecting these terms.

After considering Yahoo's request and taking into account Yahoo's previous feedback about our prior search proposal, Microsoft determined late Friday to propose an enhanced search transaction. This proposal included significant revenue guarantees, higher TAC rates, an equity investment and an option for Yahoo! to extend the agreement over a 10 year period.

Microsoft's proposal did not include changes to Yahoo's governance.

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.

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