New deal with Yahoo will appoint Icahn as a director and will expand the board by two members

The battle between Icahn, Microsoft, and Yahoo's leadership has been a heated one in previous weeks.  With Icahn threatening shareholder revolt, he promised to depose Yahoo CEO and cofounder Jerry Yang and Yahoo Board Chairman Roy Bostock if his slate of candidates were elected at the annual shareholder meeting.

Faced with this grim prospect, Mr. Yang and Mr. Bostock balked, cutting a deal with Icahn that they hope will keep him happy.  Robert Kotick, the Activision Blizzard CEO, will step down from the board to make room for Icahn.  Meanwhile, the board will expand by two members, with eight members of Icahn's posse, including fellow billionaire Mark Cuban, running for the open slots.  Only one non-Icahn candidate, Jonathan Miller, the former chief of AOL, will challenge them.

With Mr. Icahn likely to have control of three of the soon-to-be 11 board positions, he finally has enough power to finally push for some of the moves he wants.  He made it clear in a statement, that while pleased with the deal, it is only a means to his ends -- selling the company's Search business to Microsoft.

Mr. Icahn stated:

I am very pleased that this settlement will allow me to work in partnership with Yahoo!s Board and management team to help the Company achieve its full potential. While I continue to believe that the sale of the whole Company or the sale of its Search business in the right transaction must be given full consideration, I share the view that Yahoo!s valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders. I believe this is a good outcome and that we will have a strong working relationship going forward. Additionally, I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made.

Meanwhile, Mr. Bostock and Mr. Yang are pleased as the deal may save their necks as indicated by Mr. Icahn easing his rhetoric regarding their possible forced departure.  Mr. Bostock said, "We are gratified to have reached this agreement, which serves the best interests of all Yahoo! stockholders.  We look forward to working productively with Carl and the new members of the Board on continuing to improve the Companys performance and enhancing stockholder value. Yahoo! is a world-class company with an extremely bright future, and collaborating together, I believe we can help the Company achieve its ambitious goals."

Mr. Yang added, "This agreement will not only allow Yahoo! to put the distraction of the proxy contest behind us, it will allow the Company to continue pursuing its strategy of being the starting point for Internet users and a must buy for advertisers.  No other company in the Internet space has our unique combination of global brand, talented employees, innovative technologies and exceptional assets, attributes that will help us take advantage of the large and growing opportunity ahead of us. I look forward to working together with our new colleagues on the Board to make that happen."

It should be interesting to see how the board reacts, should Icahn push to sell the search business after his candidates are safely in place.  In the past, Mr. Bostock and Mr. Yang have been vocally opposed to splitting off this business unit, which the company was founded upon, insisting on a complete transaction or none at all, and demanding a lofty price for such a complete transaction.

If Icahn succeeds in selling the search unit, it would be eerily reminiscent of his victory with Motorola in a similar dispute.  Like with Yahoo-Microsoft, he initially approached Motorola hoping to depose the board and sell the entire company.  In the end the leadership at Motorola caved to his demands, and gave him a share in the board, allowing him to sell off a couple of the company's business units.  The compromise was a victory for Icahn, above all else, who made a tidy profit in stock.  Should the Microsoft-Yahoo deal go through, Icahn, who holds 5 percent of Yahoo's stock, should similarly see great financial rewards.

However, if there's anything the Yahoo and Microsoft drama has taught us, it is to expect the unexpected.  So until the deal is set in stone, don't be surprised to see more antics from the company, from Mr. Icahn, and from Microsoft.

"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch

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