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Microsoft enters Yahoo-Icahn fight to 'set record straight'

Software giant contents that its now-rejected sweetened offer for Yahoo's search business "did not include changes to Yahoo's governance" and was incorrectly portrayed as a "take it or leave it ultimatum."

Microsoft jumped into the brawl between Yahoo and investor activist Carl Icahn on Monday, issuing a "set-the-record-straight" statement on its rejected sweetened offer for Yahoo's search business.

For starters, the software giant's search-only proposal "did not include changes to Yahoo's governance."

In other words, it was Icahn, the other half of Microsoft's joint proposal, who was asking for all Yahoo board members and top management to resign immediately. But even Icahn, in his letter to shareholders Monday, noted he was willing to discuss keeping some of the Yahoo directors around, and even founder Jerry Yang as "Chief Yahoo."

Microsoft also contends its sweetened offer has been incorrectly portrayed as a "take it or leave it ultimatum," rather than a "timetable" to push negotiations forward. Yahoo, in its investor presentation, notes that Microsoft gave the company only 24 hours to consider its proposal.

Here is the text of Microsoft's statement:

On the evening of July 12, Yahoo Inc. released a statement relating to recent discussions involving Yahoo, Microsoft Corp., and Carl Icahn. Microsoft believes the statement contains inaccuracies that need to be corrected. Among other things, 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 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.

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.