Microsoft: Search-only deal was Bostock's idea

Microsoft's proposal made Friday to purchase Yahoo's search business was actually the idea of Yahoo Chairman Roy Bostock, and Yahoo has publicly "mischaracterized" the discussion surrounding the proposal, Microsoft said Monday.

In a statement, Microsoft claims that on Thursday, July 10, Bostock called the office of Microsoft CEO Steve Ballmer to arrange a call, on which he told 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," according to Microsoft.

Yahoo said Saturday night that it rejected a joint proposal made Friday night by Microsoft and investor Carl Icahn that called for a restructuring of Yahoo, the removal of its board and management team, and the sale of Yahoo's search business -- which the proposal devalued -- to Microsoft. At the time, Yahoo said it was given only 24 hours to reject or accept the proposal.

But Microsoft said in its statement that Yahoo "mischaracterized" the discussion as "a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations." The proposal also did not call for any changes to Yahoo's governance, Microsoft said.

Upon Bostock's urging Thursday, Microsoft proposed an "enhanced search transaction" to include "significant revenue guarantees, higher TAC rates, an equity investment and an option for Yahoo to extend the agreement over a 10 year period," Microsoft said.

"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," according to Microsoft. However, Yahoo told Microsoft on Saturday it had rejected the deal, Microsoft said.

Microsoft submitted its first unsolicited bid to acquire Yahoo on Feb. 1, but the two companies have been unable to come to an agreement despite months of negotiations. Most recently, Yahoo has said publicly it is willing to sell the company to Microsoft for US$33 a share, and is not interested in deal to sell only its search business.