Microsoft and billionaire investor Carl Icahn's joint proposal for Yahoo, which was rejected on Saturday, included improved revenue guarantees from search advertising, people familiar with the matter said on Sunday.
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In joining forces with Icahn, Microsoft sweetened the terms of a proposal to control Yahoo's search business after withdrawing its offer in May to buy the whole company.
The improved terms included $2.3 billion in guaranteed annual revenue from search advertising for five years, with the option to extend the deal for another five, according to the sources, who asked not to be named.
The deal would also have carried a minimum annual payment of $1.6 billion for the subsequent five years, The Wall Street Journal reported on Sunday, citing sources.
Previously, Microsoft had sought an exclusive, 10-year search ad agreement with Yahoo and had offered guarantees for only three years, a source told Reuters in June.
It remains unclear whether Microsoft had previously put a revenue guarantee amount on the table.
On Saturday Yahoo rejected the joint proposal, which would have given Microsoft its search business and left Icahn, who owns nearly 5 percent of Yahoo, in charge of the remaining company.
As part of its revised proposal, Microsoft also reiterated its suggestion that Yahoo sell its Asian assets, but Yahoo's board and advisers felt this was something the company could do independently, one source said.
Microsoft also proposed making an equity investment of $3.9 billion and a preferred debt investment of $2.8 billion, The New York Times reported on Sunday.
In a statement on Saturday, Yahoo said the Microsoft-Icahn proposal carried more complexity and risk than a search ad partnership it signed last month with Google .
After withdrawing its $47.5 billion full buyout offer, Microsoft said in June it had offered Yahoo $9 billion in cash for a partial deal, as well as revenue guarantees on search advertising that would have brought Yahoo $1 billion a year in operating income.
Such an exclusive deal would have effectively outsourced to Microsoft all the advertising that Yahoo runs alongside its search results using its in-house Panama ad system.
Yahoo instead chose to sign a non-exclusive search ad deal with Google, which promises $800 million a year in revenue for Yahoo and leaves it free to seek similar search advertising partnerships with other companies.
Microsoft and Yahoo officials declined comment. Icahn did not return a call seeking comment.