Reuters is reporting that Microsoft (MSFT) offered Yahoo (YHOO) $1 billion in cash to buy its search business in a deal that would have delivered $1 billion in additional annual operating income to Yahoo, a source familiar with Microsoft’s thinking said on Friday.
In an alternative to a full acquisition, Microsoft would have taken control of Yahoo’s search business, delivering the company better rates for advertisements tied to its search results than Yahoo’s current Panama advertising system.
Microsoft would have also paid $8 billion to take a 16 percent stake in Yahoo, which would have valued the company’s stock at $35 a share, the source said.
In January, Microsoft offered to buy the world’s second biggest search engine for $42 billion in cash and shares, representing a 62 per cent premium to the share price, valuing Yahoo! stock at $31 a share. Mr Yang rejected the offer as too low and began talks with News Corporation, owner of The Times, AOL — the internet arm of Time Warner, and made contact with Google, Yahoo!’s bigger rival.
In May, Steve Ballmer, chief executive of Microsoft, raised his offer by $5 billion, valuing each Yahoo! share at $33. Mr Yang refused to consider an offer of less than $38 per share.
However, Microsoft is still open to discussing its proposal despite Yahoo’s agreement with Google (GOOG), the source said.
Yahoo had no immediate comment.