Updated from 1:10 p.m. EDT
SAN FRANCISCO - Shares of
slumped Monday after the company turned down another chance at a transaction with
Both Microsoft and financier Carl Icahn, who has been working for a full-out merger with Microsoft, approached Yahoo! over the weekend with
to buy the company's search business, giving it 24 hours to make a decision.
But once again, Yahoo! turned down the deal.
"It is ludicrous to think that your Board would accept this 'take it or leave it' proposal -- under which we would restructure the Company and hand over to Microsoft Yahoo!'s valuable search business and to Carl Icahn the rest of the Company -- with less than 24 hours to respond," Yahoo! wrote in a letter to shareholders on Monday.
"We remain open to any transaction that delivers full value to our stockholders -- we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor."
Microsoft issued its retort to Yahoo's characterization of the proceedings on Monday afternoon: "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," the company said. "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."
Shares of Yahoo! were down 4.9%, or $1.15, to $22.42 in recent trading. Microsoft was up a penny to $25.26.
In his own letter, Icahn points out that Yahoo! was offered more than 24 hours to respond if the company was willing to put off its annual shareholder meeting on Aug. 1.
He also refutes Yahoo!'s allegations that he is in cahoots with Microsoft to push through a deal.
"That is patently ridiculous," Icahn wrote. "Since Yahoo! failed to consummate a transaction with Microsoft this year, I have spent hours and hours attempting to get the parties together because I believe that it is beneficial to Yahoo! shareholders to have a deal with Microsoft and I have worked hard trying to make it happen."
On Jan. 31, Microsoft made an unsolicited bid to buy Yahoo! for $44.6 billion and later bumped that offer to $47.5 billion before ultimately withdrawing it and replacing it with a deal to buy the company's search business for $1 billion. Yahoo! rejected the search deal, and on Saturday, rebuffed Microsoft's sweetened offer, which would have guaranteed $2.3 billion in annual revenue to Yahoo! for five years, with the option to extend the deal for another five.
Jefferies analyst Youssef Squali described the latest proposal "as another attempt to soften up Yahoo! as they reel it in for a full buy-out."
Squali added that the search deal poses clear risks to Yahoo! shareholders because any upside from Microsoft's minimum guarantees would be contingent on its ability to better monetize on search. He further noted that the deal would preclude the possibility of a sale of Yahoo! in its entirety, which could command a higher premium than just selling off the search business.