SAN FRANCISCO (Reuters) - Microsoft Corp (MSFT.O) and billionaire investor Carl Icahn's joint proposal for Yahoo Inc (YHOO.O) includes $2.3 billion in guaranteed annual revenue from search advertising for five years, with the option to extend the deal for another five, people familiar with the matter said on Sunday.

on Saturday rejected the proposal that would have led to Microsoft's buying its search business and left Icahn, who owns nearly 5 percent of Yahoo, in charge of the remaining company.

One source familiar with the joint proposal said it was very similar to Microsoft's previous proposal to buy Yahoo's search business, but contained the improved revenue guarantee terms.

(Reporting by Anupreeta Das and Daisuke Wakabayashi, editing by Martin Golan)