Updated: Yahoo! Blasts Back

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.