Microsoft offered £4bn for Yahoo stake

Microsoft has now abandoned its attempts to buy Yahoo

Microsoft has revealed it offered $8bn (£4.09bn) for a 16 per cent stake in Yahoo before negotations broke down last week.

If the deal had been agreed, Microsoft would have also paid $1bn to take over Yahoo's search business, and supplied the search firm with an extra $1bn (£511m) a year in operating income.

The details, revealed in an email sent to Microsoft staff, will dismay Yahoo's shareholders, who have seen their share price fall steadily since the collapse of a complete takeover bid earlier this year.

Even last Thursday's revelation of renewed advertising co-operation with Google failed to boost Yahoo's share price, which slipped by four per cent on the day.

The future of the Google deal remains uncertain after Yahoo shareholder Carl Icahn threatened to oust the board at the company's annual general meeting on 1 August. If he is successful, change of control clauses would let either firm cancel the deal.

"While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit," said Icahn.

"I continue to be extremely disappointed with the Yahoo management, but the Google deal might have some merit and seems to be better then the alternative deal proposed by Microsoft."

Last week's deal was for Google to supply a proportion of the ads appearing on Yahoo's search engine and community sites.

Microsoft offered a similar arrangement in the form of a 10-year exclusive contract with a guarantee of higher advertising rates for at least three years.

Meanwhile the IT industry is speculating over the possible meaning of a strange paragraph that was found within the SEC filing for the Google-Yahoo deal:

"If the services agreement is terminated by either party within 24 hours of the effective date as a result of a change in control of Yahoo (other than a change of control triggered only by Microsoft), Yahoo is required to pay Google the sum of $250,000,000."