Yahoo Rejects Microsoft's $9Bln Offer

SEATTLE -- When Yahoo turned down the latest offer from Microsoft last week, it walked away from $9 billion in cash and $1 billion a year in additional operating profit, Microsoft said.

In an e-mail to employees, Microsoft platforms and services division president Kevin Johnson said it had offered $8 billion for a 16 percent stake in Yahoo and $1 billion to buy Yahoo's search business and assume its operations.

The proposal also included a revenue-sharing partnership that would have delivered $1 billion a year in additional operating income to Yahoo in part because of a three-year guarantee of better rates for advertisements tied to its search results than Yahoo's current Panama advertising system.

Microsoft's most recent offer was an alternative to its previous full acquisition proposal. Instead, Yahoo entered an advertising agreement with Google on Thursday.

Microsoft, a dominant force in desktop software but a laggard in online search advertising, is still open to discussing its alternative proposal despite Yahoo's partnership with Google, said a source familiar with Microsoft's thinking.

Yahoo had no comment. A Microsoft spokesman declined to comment.

Another source familiar with the matter said Microsoft had proposed a 10-year exclusive deal to handle Yahoo's search advertising and only guaranteed higher advertising rates for three of those years. Johnson's e-mail on Friday did not mention the duration of the deal, only saying it was "long term."

By contrast, Yahoo's deal with Google, which will pit the two companies' ads against each other in an auction, is nonexclusive. It means that other companies can join in the auction to bid to place ads next to Yahoo's search results. The deal with Google will boost Yahoo's cash flow by $250 million to $450 million in the first 12 months, Yahoo said.