Yahoo has sent a letter to its shareholders justifying its deal with Google, saying it will enhance the company's profitability and provide more shareholder value than the offer put forth by Microsoft to invest in Yahoo's search business.
In a letter to shareholders, Yahoo's chairman Roy Bostock and CEO Jerry Yang said the deal with Google will generate $250m (£126m) to $450m (£227m) in incremental operating cash flow for Yahoo in the first year.
Microsoft's offer to buy Yahoo's search business for $1bn and invest another $8bn required Yahoo to commit to a 10-year exclusive arrangement that "would have made us dependent on Microsoft for all of our search business", Bostock and Yang wrote.
It would also have given Microsoft a powerful role in determining Yahoo's future, including the right to veto the sale of Yahoo, they wrote.
Microsoft announced an unsolicited offer to buy Yahoo on 1 February for $44.6bn. Yahoo's board rejected that offer, saying it undervalued the company. Microsoft increased its offer to $47.5bn, but on 3 May, Microsoft abandoned talks after the two sides failed to agree on a price.
At the time, investors criticised Yang and Yahoo's board for allegedly not negotiating in good faith and failing to look out for shareholders' best interests.
Since then, Microsoft has repeatedly denied an interest in acquiring all of Yahoo, but offered to buy Yahoo's search advertising business. Those negotiations fell through. Yahoo instead signed a deal with Google to outsource part of its search ad business.
Under the deal with Google, Yahoo will run sponsored search ads supplied by Google alongside Yahoo's search results. Google will pay Yahoo a fee based on revenue from click-throughs generated by Google's ads on Yahoo.