Bill Gates’ retirement from Microsoft Corp was an opportunity for him and Chief Executive Steve Ballmer to espouse on their decades-long partnership. Here are some excerpts from their Town Hall meeting with Microsoft employees on Friday.

On how they met:

Gates : Steve and I were both at Harvard and I was in this dorm up at Radcliffe where the kind of anti-social math types hung out … I was energetic and had ideas. There was a guy who would hang out with me who also knew Steve and he kept saying “There is this other guy who is super energetic like you and he’s a neat guy.” So … we went out to the movies together. I think we saw right away that, even though we are different in some ways, we had a lot in common and from that day forward, we brainstormed about our dreams, what we wanted to do and that was fantastic.

Ballmer: So we went out to see this movie. It was a double bill. ‘Singing in the Rain,’ which is my favorite movie ever. I’ve seen it now 30 times … We come back from the movie and we’re dancing, playing Gene Kelly and some guy wrestles me to the ground. Bill is trying to beat him away. It was really a weird kind of place.

On how Ballmer joined Microsoft:

Ballmer: Bill and Paul (Allen) interviewed me. Bill’s Mom and Dad took me out to dinner. They had met me once before. That was the big rush back then, dinner with Bill’s Mom and Dad. And then at the end of my job interview, and I think this is unique, Bill says “OK, I’m leaving town. Here’s my car, take care of yourself.” So I took him to the airport and he left on vacation in the middle of my job interview. So I guess I got the job anyway.”

Gates: I knew I wanted Steve. I knew I needed Steve, because every contract seemed like such a miracle … Picking which to do, how to price it and how to hire people. I had hired my friends, which was a small set and that wasn’t going to get us there. I was shy about it. I thought Microsoft was very important, but Steve clearly had so much opportunity that I was shy about saying to him, “Hey, come here.”

On negotiating Ballmer’s salary:

Gates: I went on that vacation, I was on a boat … and so it was over the radio phone … that we negotiated, not his share ownership, we’d come up with a formula that came up with something like 7 or 8 percent. We were negotiating his salary, whether it would be $36,000 or …

Ballmer: $40,000 or $50,000. That was the negotiation

Gates: So, over this radio phone, my friends on the boat, they’re all drinking and saying “Give him whatever he wants.”

Ballmer: “Don’t worry, he was tough. We split the difference. I came to Microsoft because of Bill. I didn’t know much about programming or I didn’t know much about personal computers. I knew Bill had a cool company. I knew he was a great guy and that he was brilliant and something good could happen.

On how Ballmer wanted to quit a month into the job:

Ballmer: I said “Jeez, I just dropped out of business school to come to a 30-person company as the bookkeeper.” My parents didn’t got to college. My dad didn’t finish high school and the fact that I dropped out wasn’t considered very good by my family. So I went out to dinner again with Bill and his dad … So this is what Bill said to keep me: “You don’t get it. You don’t get it. You don’t get it. We’re going to put a computer on every desk and in every home. It’s not worth it to go back to business school.” It was the vision that Bill, maybe it had been repeated before that, but it sticks in my mind as the thing he said that got me to stay.

On the office car park:

Gates: In the early days, we worked unbelievably hard. In fact, it was kind of a fun thing that I knew everyone’s car in the parking lot and there was always a thing that you would try to take the first parking place, because that meant you were the first to come in. If, when you left, there was a still a car to the left of you, that meant someone had done something called ‘lapped you.’ That is they had come in before you and they left after you. That was a humiliation that someone was lapping you. In fact, we told a guy at IBM, Mel Hallerman, who was part of the original PC project and we told him about this. He was a hard-working guy so he started doing it at IBM and doing it very well. He was in early and left late.

Ballmer: No life. The guy had no life.

Gates: About nine months later, we’re down at IBM. Steve and I go out to dinner with Mel and Mel’s saying ‘there is some guy who’s been working harder than I am. I come in really early, I leave really late. The guy is here before me and leaving after me every day. I’m going to find out who this guy is.’ So after we have dinner, we go back to this IBM parking lot and Mel points out the car of this guy. Steve looks at it and says “Wait a minute, that’s the rental car that a few months ago I took and forgot to take back.”

(Photo: Reuters)

Details of the backroom dealings between Microsoft and Yahoo from an investor lawsuit were unsealed by Delaware Chancery Court Judge William Chandler on Monday.

The document adds some color to what we already know, including a history of rebuffing offers dating back to 2007, criticism over the size of Yahoo’s severance plan by its own consultants and Yahoo’s recently hired CTO.

Notes by a Yahoo participant from a phone call between CEO Jerry Yang and Microsoft CEO Steve Ballmer Ballmer also appear to indicate that Yang quickly rejected Microsoft’s January 2008 overtures, as his predecessor Terry Semel did a year before (at the far higher price of $40).

The following are excerpts from the complaint containing internal Yahoo correspondence. The numbers at the start of each excerpt  refer to the paragraph order in the complaint:

Terry Semel rejects a $40 per share offer from Microsoft in Jan. 2007

31. Yahoo’s reaction has been consistent, giving the back of the hand to Microsoft’s efforts towards a consensual deal, including a January 2007 acquisition proposal offering about $40 per share. The Board-authorized response to that approach was a letter from then-CEO Terry Semel rejecting “a broader strategic transaction at [that] time,” but professing a willingness to discuss “a commercial partnership arrangement.” Discovery obtained by Plaintiffs gives no indication of serious discussions about any such commercial relationship.

Yang ordered a rejection letter to be prepared in Oct, 2007 spurning an expected offer from a “third party” that the complaint says is Microsoft:

32.  During an October 5, 2007, meeting, Yang and the Board discussed “recent communications about a third party’s interest in a transaction with the Company” and “the likelihood that a third party would make an offer to purchase the Company.” Yang obtained approval to set the stage publicly for a rejection of any offer. A standby press release to be issued by Yang after consultation with select Board members stated, among other things, that “the Board will carefully consider the offer and is committed to acting in the best interests of shareholders in doing so,” but that it had “very recently determined that it was not the right time for the company to seek to sell itself.”

Notes from phone call between Microsoft’s Steve Ballmer and Yahoo’s Jerry Yang a day ahead of Microsoft going public with its offer

38.  On January 31, 2008, telephone call captured by notes of an unidentified Yahoo participant, Ballmer told Yang that Microsoft much preferred to negotiate a deal in private but was prepared to disclose its offer publicly because of concerns that Yang would never support any deal, regardless of price. According to the notes:

–if we want to make a counterproposal and in the ballpark then we don’t go public and we push for an [agreement].

*****

–if you guys can’t get to a [point] of discussion in a couple of days — then still going to go public — and everyone can see what investors think

–if on the same page tonight then hold announcement but if not then we put it out there and its visible and we work through it

*****

–if had a price and willing to sell the business and get that comfort from you and Roy then can hold it a couple of days

Jerry — you don’t lose anything by waiting a week.

*****

Steve — if you really don’t want to sell the biz then don’t want to wait.

Microsoft had earmarked $1.5 billion to retain Yahoo employees.

39.  According to the notes, Microsoft made clear from the outset it “care[s] about employees,” “want[s] employees to be OK,” and had earmarked “$1.5b for retention of employees,” in addition to the “$45b for deal.”

Yahoo CTO Ari Balogh disagreed with Yang’s quick adoption of an employee retention plan.

50. The day after Microsoft’s offer, Yahoo’s newly-hired Chief Technology Officer, Ari Balogh, the person to whom Yahoo’s engineers report, told Yang that he disagreed with Yang’s desire for immediate adoption of a broad employee retention plan. Balogh reasoned that Microsoft’s offer:

“is likely hugely retentive for anyone who understands how these things go (and everyone will shortly as we prepare them for the dance). We should run the glue analysis on the key folks, and have set up a pool and leeway to move quickly based on senior management judgment, as necessary. After this settles in, we can make a decision on something narrow or broad or nothing.”

 A compensation consultant firm Yahoo hired to evaluate its change in control severance plan called Yahoo’s plans “nuts.”

61. Compensia calculated that the cost of the proposal would equal $1.5 billion, or 3.2% of the transaction price. In an internal email, Compensia President Tim Sparks wrote that “3.2% seems very high for a deal of this size, but I am guessing (hoping) that this assumes 100% double trigger activation?” (Ex. A) In an email one minute later, Sparks made clear his view of Yang’s plan to provide 100% equity acceleration for all employees: “That’s nuts.” (Ex. B)

We weren’t expecting huge surprises during Yahoo’s earnings conference call, but CEO Jerry Yang was spectacularly vague about the Internet company’s plans vis-a-vis Microsoft or any other potential tie-ups — with Google, Time Warner’s AOL or News Corp — that Yahoo has been working on.

At the very start of the call, Yang essentially said “Don’t go there” to analysts and investors, reminding them about the purpose of the call.

“I’d like to remind you that today’s call is about our Q1 results, so please direct your questions to the quarter if possible,” Yang said.

When he touched on Microsoft — referring to it as three months of “uncertainty” — it was to reiterate the same line: “Our board and management are committed to choosing a path to maximize shareholder value.”

At the same time, Yang was bent on convincing analysts and investors that, despite an unchanged revenue forecast for the year, Yahoo deserves a higher price than the $43 billion cash-and-stock deal that Microsoft has offered. Is that because Yahoo piggybacked on gains from a stake in China’s Alibaba.com to a higher quarterly profit? Or because Yang said Yahoo’s “strategies and investments are beginning to pay off”?

Not that analysts or investors were convinced. Most continue to believe that Yahoo’s earnings are unlikely to put pressure on Microsoft on raise its bid.

Microsoft CEO Steve Ballmer, meanwhile, said before the earnings, “I wish Yahoo all the success with its results, but it doesn’t affect the value of Yahoo to Microsoft.”

So where does that leave Yahoo now? Wednesday might offer some clues, when Yahoo’s two-week test on outsourcing search advertising to Google ends. Or it may not. Yahoo chairman Sue Decker already swatted hopes on the call, saying it’s “premature” to speculate on what sort of deal the two might strike.

Photo: Yahoo CEO Jerry Yang (Reuters)

Is Digg.com for sale?Even though founder Kevin Rose told CNET last month that the answer is “no”, today the answer appears to be “yes”.According to TechCrunch, Google and Microsoft may be prepared to fight over the popular Web site, which lets readers recommend articles to others.Digg has been working with investment bank Allen & Co, and is pitching big tech and media companies on a sale. It is even prepared to take less than the $300 million suggested late last year, TechCrunch said.Four companies, including Internet giants Google and Microsoft, are in heavy due diligence with Digg. The other two are media or news companies, TechCrunch said, adding that Google will likely bid $200-$225 million, which Digg would likely accept. Is Barry Diller’s IAC interested?TechCrunch expects a bidding war between Microsoft and Google.It wouldn’t be the first time they have butt heads over Digg. Last summer, Microsoft became the exclusive provider of display and contextual advertising on Digg.com, replacing Google.Then again, Silicon Alley Insider suggests that any offer over $100 million might be too much.Update: Digg CEO Jay Adelson speaks out on the company’s blog:

Normally our policy is to not comment about things like this, but this morning’s rumors about a bidding war involving Google and Microsoft have created such a stir we feel compelled to tell you all directly that they are completely inaccurate.Sorry to burst any drama theories, but they aren’t true. We remain focused on improving Digg and rolling out great features.

Alleyinsider’s Peter Kafka remains a bit skeptical over Adelson’s comments.(TechCrunch )Keep an eye on:

• Microsoft’s Steve Ballmer pledged the company would gain share against Google in online advertising and Web searching, even if it’s his “last breath” at the company. (Reuters)
• The board of National Public Radio its said chief executive, Ken Stern, was leaving after less than 18 months “by mutual agreement.” (NYT)

(Photo: Digg.com founder Kevin Rose, Digg.com)