- Brian Morrissey

NEW YORK The Microsoft-Yahoo! saga appears far from over, with the latter issuing a strongly worded statement in response to Microsoft's stated support for Carl Icahn's effort to unseat Yahoo!'s board and replace CEO Jerry Yang.

Yahoo said today: "Mr. [Steve] Ballmer [CEO of Microsoft] and Mr. Icahn have teamed up in an apparent effort to force Yahoo! into selling to Microsoft its search business at a price to be determined in a future 'negotiation' between Mr. Icahn's directors and Microsoft's management. We feel very strongly that this would not lead to an outcome that would be in the best interests of Yahoo!'s stockholders. If Microsoft and Mr. Ballmer really want to purchase Yahoo!, we again invite them to make a proposal immediately. And if Mr. Icahn has an actual plan for Yahoo! beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it."

Microsoft had earlier said: "We have concluded that we cannot reach an agreement with them. We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the 'search' function with large financial guarantees or, in the alternative, purchasing the whole company."

Microsoft issued its statement in response to a letter from Icahn to Yahoo! shareholders, urging them to replace Yahoo!'s board of directors during its annual meeting Aug. 1. Icahn disclosed that he held talks with Microsoft's Ballmer last week. These talks made it clear to Icahn that Yahoo! needs new leadership.
 
"Our company is now moving toward a precipice," he said. It is currently losing market share in its 'search' function; our current board has failed to bring in a talented and experienced CEO to replace Jerry Yang and return Jerry to his role as chief Yahoo!, and currently it is witnessing a meaningful exodus of talent. It is no secret that Google (which hired a great operator as CEO) continues to dramatically outperform Yahoo!."
 
Yahoo! is reportedly also in talks with Time Warner about combining with its AOL unit.
 
Yahoo! last month struck a deal for Google to handle an unspecified amount of its search advertising business. Microsoft has criticized the agreement as bad for Yahoo! and the industry, leading to a virtual monopoly of the search advertising business. Microsoft believes the Google-Yahoo! pact would decrease innovation and ultimately drive up costs for advertisers while eliminating choice.
 
"We believe that our proposed search acquisition and partnership would have delivered superior value to Yahoo!'s shareholders and the marketplace as a whole," Microsoft said. "We have not changed our position, even as we continue to move forward with our own online search and advertising offerings."

This story updates an item posted earlier today with Yahoo!'s statement.