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Did Jerry Yang and the board lie to shareholders to try to hang onto their company?  (Source: Reuters)

Billonaire investor Carl Icahn is leading the Yahoo takeover bid, which seeks to oust the board and now CEO and co-founder Jerry Yang.  (Source: Star Tribune)
Resisting the Microsoft takeover may effectively have ended the Yahoo careers of not only a number of board members, but also CEO and co-founder Jerry Yang

Icahn is stepping up his campaign to takeover Yahoo's board and shake up the company's leadership with tough talk.  DailyTech has closely followed the ongoing drama between Icahn and board, which have significant ramifications on the possibility of a possible Microsoft merger.

This week Icahn delivered his hardest-hitting comments yet.  In them he says that if his takeover is successful, he will seek to depose Yahoo co-founder and CEO Jerry Yang, whom he sees a roadblock to a merger.  While Icahn was delivering his comments, Yahoo's board was busily meeting to discuss possible limited partnerships with Microsoft or the possibility of outsourcing its search functions to Google Inc.

In an interview Icahn laid on the criticism thickly for what he believes are disingenuous actions on the part of the board and Yang in their willingness to consider an offer.  He also accuses them of intentionally setting of an artificially costly employee-retention plant to deter a potential deal.  Icahn comments, "I am amazed at the lengths that Jerry Yang and the board went to entrench themselves in this situation."

He will seek to oust the current board at the annual shareholder meeting.  He seeks to replace it with a Microsoft-merger-friendly dissident board, which includes billionaire buddy Mark Cuban.  The meeting was originally set to be held on July 3, but it got pushed back August 1 by a nervous board.  The board blasted back at Icahn in a statement, saying, "Yahoo's board of directors, including Jerry Yang, has been crystal clear that it would consider any proposal by Microsoft that was in the best interests of its shareholders."

A new Yahoo shareholder lawsuit just unsealed provides details which cast a surprising new light on the Microsoft-Yahoo saga.  The suit refers to a refusal of an informal $40 a share offer from Microsoft in January 2007 when shares were trading between $26 and $29. 

However, Yahoo and the board publicly stated that they would consider favorably offers of $37 a share or more.  Microsoft had publicly stated that it was only willing to offer $34 or $35 a share, but it is entirely possible that it offered more behind closed doors.  Unsurprisingly, a Yahoo spokesman said that the board was "not aware" of a $40 a share offer.

Along with the surprising revelation of possible deceit on the board’s part, the suit also provides details on the employee-retention program, which Icahn says was constructed as an artificial roadblock to a merger.  The plan would apply to Yahoo employees who were fired without "cause" or had "good reason" to quit in case of a merger.  Such employees would be awarded exceptional severance packages -- as much as $15,000 in additional reimbursement, full pay for as much as two years, and medical and dental coverage for some months.

Based on his own calculations Icahn says the package would have cost Microsoft around $2.5 billion, which Microsoft was well aware of.  This, Icahn said, helped to kill the deal.  Yahoo contends the package would only cost between $462 million and $2.1 billion depending on the number of departing employees.  Icahn points out that the plan contained seeming outlandishly flexible provisions, such as full severance (including full pay at their former salary) to any employees who saw their job descriptions change.  Thus in the case of shuffling of responsibilities, some employees could be taking home two paychecks for one job, for over a year.

Icahn comments, "It's no longer a mystery to me why Microsoft's offer isn't around.  How can Yahoo keep saying they're willing to negotiate and sell the company on the one hand, while at the same time they're completely sabotaging the process without telling anyone?"

He states that trust between Microsoft and Yang has been completely lost and while Yang heads the company a merger is impossible.  Indeed, Microsoft today is lukewarm about any potential deal

The shareholder lawsuit brought against Yahoo has raised some startling accusations.  If they hold true, the picture of the Yahoo-Microsoft saga may change from one that seemed to be a dueling battle of egos, to that of a faltering company trying to jealously and deceptively hold on to its independence at the expense of its shareholders.  If this proves true, it will surely aid Icahn in his efforts to oust the board and Yang.



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And this is why my company is private.
By Anonymous Freak on 6/4/2008 7:52:09 PM , Rating: 2
My company may be small, but no matter how big it gets, I will never take it public. It is *MY* company, dammit. I don't want some random investor, who has NO day-to-day responsibilities, trying to tell me how to run my company. I'll gladly hire a separate CEO and step down from day-to-day responsibilities if it ever reaches that point; but he will be my employee, not my liege.




RE: And this is why my company is private.
By Solandri on 6/4/2008 8:19:34 PM , Rating: 2
You can have your cake and eat it too. You can go public and as long as you retain just over 50% of the shares, you'll still have full control of the company. Of course you still have to watch out for underhanded shenanigans by greedy people trying to take over the company.

http://waxy.org/random/arsdigita/ (venture capitalists with 2/7 vote almost manage to take over a company)


RE: And this is why my company is private.
By Ringold on 6/4/08, Rating: -1
RE: And this is why my company is private.
By TheKoz on 6/5/2008 12:01:27 PM , Rating: 1
That is true of just about every company that is primarily a newspaper company. The newspaper business as a whole is slowly dying out. Look at Tribune Co., same story. It has nothing to do with the content of the paper. I suppose that if you don't like the truth though you can ignore the fact that the paper has won more Pulitzer prizes than any other paper, by a healthy margin. I suppose they just toss out those awards though.


RE: And this is why my company is private.
By Solandri on 6/5/2008 12:26:12 PM , Rating: 2
Not to contradict your point (I don't really have an opinion on newspaper bias), but Pulitzers are given for dramatic and engrossing writing/photography, not for unbiased reporting. In fact, several Pulitzer-winning photos had socio-political impacts with the public which were completely contradictory to the stories behind the photos.


RE: And this is why my company is private.
By MrBlastman on 6/5/2008 12:36:39 PM , Rating: 2
What Solandri said.

I might not like the political spin of the Times, nor their biased towards the left subject matter, but, I do enjoy their writing.

The writers that write for the Times actually know how to write and do it very well. Far more elegantly than say Reuters or many of the other major news outlets.

That I will give them - and that is exactly what comprises a major part of earning a Pulitzer.


By Ringold on 6/5/2008 5:44:43 PM , Rating: 2
I agree, its fantastic writing. Unfortunately, when I want quality writing, I read books. When I'm looking for news I'd rather it be boring and not skewed rather than elegant propaganda.


By Ringold on 6/5/2008 5:50:04 PM , Rating: 2
Valid point, but CNBC even runs somewhat educational commercials warning investors to avoid such companies. When CEO's have your money but are accountable only to themselves it's dangerous. Beyond that, it undermines public faith in the equity markets when someone like the OP takes public money by selling some ownership and then acts in an manner that doesn't maximize value for all owners. It's dishonesty and of poor character in my book. If you don't want to be anything less than absolute lord over your company, don't take it public, simple. I don't see what the problem is.


Kmart of the online search companies??
By cherrycoke on 6/4/2008 8:22:22 PM , Rating: 3
I don't know why but when I visit the Yahoo.com homepage it feels like walking into K-mart. I don't do either of these things very often, but they just have a similar feel.




RE: Kmart of the online search companies??
By Ringold on 6/4/2008 11:44:07 PM , Rating: 3
Maybe its just me, but the difference in google.com and yahoo.com is why Google became my universal search engine, and, ultimately, email provider. Yahoo.com is a little better than it used to be, but it should have had one of those warnings for people prone to seizures.


By nycromes on 6/5/2008 8:47:59 AM , Rating: 3
Google and Yahoo were built on two differing ideas. Yahoo has grabbed an AOL type of mentality, they want to be the one stop shop for all web activity of it's users. While thats not a bad idea for the business, the web user has evolved beyond this. Now web users tend to want to go to various sources (usually in their mind, the source) for their web activities. Google has fallen into that category nicely. Although google has many different parts, their pages show you that each area really focuses on just that one thing (IE: search is just search, e-mail is just e-mail). Though there is crossover, but its not over the top like Yahoo.

In summary, there is beauty in simplicity. Google embraces this whole heartedly, while the idea seems to have flew over yahoo's head without them even noticing.


so if carl gets the bid...
By tastyratz on 6/4/2008 9:48:45 PM , Rating: 5
would this mean that icahnhasyahoo?
No cute kitties here.




so if carl gets the bid...
By tastyratz on 6/4/2008 9:48:45 PM , Rating: 2
would this mean that icahnhasyahoo?
No cute kitties here.




As I see it
By crystal clear on 6/5/2008 10:00:42 AM , Rating: 2
"One golden day redeems a weary year."


Yes thats the day the currrent board & its CEO are fired, because.......

"It is not who is right, but what is right, that is of importance."

Ultimately

Truth is not a crystal one can put in one's pocket, but an infinite fluid into which one falls headlong."




By MrBlastman on 6/5/2008 11:08:05 AM , Rating: 2
... Yahoo looked onward as Ray, with a queasy look turned away, weapon in hand and slowly dragged his feet towards the door. A drip of sweat ran down his arm and hung on to the tip of his index finger. With another step it broke free and began its short, but rapid descent of earthbound destiny. With a plunk it landed and spread out along the tile. It was as if Ray shed a tear knowing full and well what he must do... but, he was a MAN and men don't cry... or do they?

He grabbed the front door and pulled it shut stopping short of full closure and turned to face Yahoo one more time before his destiny meets reality and with an attempt at confidence, "I shall return my dear, my love, and.. w-we, shall be married very soon." The door pulled shut and the light outside ceased. A bleak shadow filled the room and Yahoo began to smile once again with a few of her white teeth poking through. There was zero trepidation, no remorse, not a single ounce of regret. She contemplated her, their, mo- future...

... Her phone rang - who could it be? She flicked on a hallway light and answered with composure,"Hello?"

"Yahoo, my child, how are you?," rang through the receiver with a slight Asian accent - very discreet but discernibly still present.

"I'm fine. Dad. What do you need?," staunchly replied Yahoo. She knew very well what her dad, Mr. Yang was calling about and she would not let him stop her plans.

Yang paused for a moment obviously aware of his daughters discontent, "Yahoo, rumor has it there was quite a bit of turmoil at the M.Soft mansion earlier today. Y-You, wouldn't, happen to know anything about that would you? You know how I feel about that family and know what I have commanded."

The burning fire returned to Yahoo's eyes. Her restlessness increased, her hair in her extremities began to quiver. Her dad, of all people, would be the last one to foil her future.

"Yes, Father, I do KNOW what is going on. YOU are meddling with things YOU should stay out of. How dare YOU call me and insinuate what I may or may not DO. I am a grown woman and if you aren't too careful," Yahoo spoke firmly but then immediately softened her tone to a cold, but directly chilling riposte, "you will be sorry."

Silence was heard on the other end for a short pause, but then it gave way to a voracious eruption of energy, "I gave BIRTH to you! I will not have this from my children! YOU will stay right there and I will see you soon. We will, you will settle this nonsense once and for all for I will not allow you to marry that man!" Mr. Yang was not pleased. "Don't get any ideas, Yahoo. You will be there or, else."

With an obvious *slam* on the other end of the line, the discussion was over. Mr. Yang would be there soon and the talk was over.

'Else' is a definitive word, something so finite and targeted that any surefire thought of reprieve is certainly out of the notion.

'Else' is a word that Yahoo did not relish at all in the sense of obedience. Yahoo was never known listen to what everyone told her to do. Nonetheless, Yahoo's heart raced. She knew the power of her father and was quite aware of what he was capable of.

She pressed the power button on her phone and frantically dialed out! The phone rang once, twice, three times - the hysteria built, four, five, six - her heart pounded, seven, and eight - would the machine pick up late? And on the ninth ring a burly mans voice was heard. A voice of magnitude neither Bill nor Yang could conjure up; one of such strength, yet sinister flair that would send flowers wilting in its echoes. "Hello?"

"Uncle Kahn!" Yahoo replied with trepidation. A wavering in her tone was heard - that of dread.

"Yes Yahoo, you sound worried, what can I do for you?" slipped through the line.

"Uncle, my Father, I'm scared Uncle please! I - I think he is going to hurt me..." rapidly spilled out from Yahoo's lips. "He won't let me and Ray finish the knot Uncle. I don't know what to do..." Ahh yes, a scared woman indeed. A blight on mankind is the power of a female’s ploy which has been the downfall of even the most men of men.

"I will take care of everything baby." Passed through the phone softly with a masculine whisper once more and a click was heard on the other end.

Yahoo coolly hung the phone up and looked at herself in the kitchen mirror. There was no more fear in her eyes, no more languishing panic, her heart bounced in unison with the grandfather clock in the hall.

She smiled. She knew that it would all be hers soon. All she had to do now was wait...

What would happen next? Will Yang show up as promised? Who is this Uncle Kahn? What does he really have in store? How deep do Yahoo's clutches really reach? Will Ray return with smoking gun in hand?

This will all be shockingly revealed... NEXT WEEK! You won't want to miss the next show!




Go Yang!!
By Cerin218 on 6/4/08, Rating: -1
RE: Go Yang!!
By Master Kenobi (blog) on 6/4/2008 5:42:19 PM , Rating: 5
You can root for Yang all you want but it's a safe bet that his days are numbered. Yang and the board have succeeded in angering many share holders. With the now involvement of the high end investor crowd, the deck is stacked in the pro-microsoft camp.


RE: Go Yang!!
By finalfan on 6/4/2008 5:47:36 PM , Rating: 5
If it's a private company, you can do whatever you want. However, when you make billions by selling the company to public, you no longer have the right the do so. Shareholders owns the company.


RE: Go Yang!!
By thomp237 on 6/4/2008 5:56:26 PM , Rating: 4
Couldnt have said it better. Yang's primary responsibility is to maximize shareholder profits, even at the expense of his own ego.


RE: Go Yang!!
By Samus on 6/5/08, Rating: -1
RE: Go Yang!!
By JediJeb on 6/4/08, Rating: 0
RE: Go Yang!!
By pnyffeler on 6/4/2008 6:58:54 PM , Rating: 5
Founders of companies make their companies public to make money for themselves & their company. Nobody made them go public. But Yang & the board decided to do it. And now Yang is estimated to be worth $3.2 billion. That's $3.2 billion.

I'll save my tears for somebody a bit more worthy of my condolences.


RE: Go Yang!!
By Ringold on 6/4/2008 11:23:32 PM , Rating: 2
Lots of whining that sounds good, but when presented with the fact that so many of the companies in an index like the S&P500 are doing so well, the whining just doesn't stand up.

Beyond that, many firms do fine as private firms, and plenty of companies take themselves private after going public. As long as Yahoo is public, however, it doesn't matter what you or Yang would like to see. If Icahn is a shareholder, and he has the votes, then effective he owns Yahoo. Not Yang. It's not Yang's job to go out in a blaze of glory, it was Yang's job to maximize value for the owners. Sure, a lot of times a business just wants capital to work with, but other times it's founders wanting nothing but a massive payday. Then after they get their massive payday, they refuse to hand over the reigns.

As for investing in struggling companies, Yahoo's performance clearly was struggling, but more to your point, plenty of people specialize in exactly that. Unfortunately, since being over staffed and over burdened is what got them in to trouble in the first place, they often have to cut labor costs. They usually sell the companies later that end up being much more healthy than before the private equity firms took them over, but yet people whine about that too, calling them robber barons and such. Catch 22.


RE: Go Yang!!
By nosfe on 6/5/2008 6:44:38 AM , Rating: 3
quote:
That really is the sad fact in business today. Someone works hard to build a company, but you reach that point where to continue to grow and even survive you must go public and essentially hand your company over to the shareholders who mostly only care about profit and care nothing for the business itself. The workers end up too often getting the shaft and before you know it what was once a leading company in its field is reduced to a memory.


hey, that almost sounds like EA


RE: Go Yang!!
By Polynikes on 6/5/2008 9:41:31 AM , Rating: 2
Precisely. If it's true that this stuff happened, that whole board deserves to go. Although Icahn is clearly doing this for a profit, it's still going to benefit the shareholders who, in my opinion, got screwed.


RE: Go Yang!!
By amanojaku on 6/4/2008 5:56:35 PM , Rating: 2
Damn, everything you said was wrong.

quote:
So basically a billionaire is angry because a guy that created a company and doesn't necessarily need Microsoft to buy it is resisting an offer to be bought so the billionaire can't make millions more for nothing.

Yahoo! is sinking faster than the Titanic and is quickly becoming irrelevant. Yang created Yahoo!, but he and the executives have let it fall out of grace. That billionaire is pissed because he's loosing money on something that should be making money, with or without Microsoft.

quote:
If I were Yang I would hold out too. Microsoft has nothing he needs so that kind of leaves him in the drivers seat to set the price.

Yahoo! needs two things: money and leadership with a clue. MS has money, and successful, though questionable, leadership.

quote:
Like MS doesn't have the resources? If they want it bad enough they can pay.

MS tried to pay Yahoo! at least three times. Twice this year and once last year.

quote:
Personally I like the thought of the CEO that protects the employees that MS could care less and will fire on whim. Good for him. How would you feel if someone were trying to take a company you helped make a success just to line his own pockets.

With Yahoo! going down the tubes those employees will be out of work, anyway. MS, or some other company, will end up snatching them up. The smart ones are already leaving.

quote:
Screw Ichan he looks like a jerk anyway.

Looks have nothing to do with ability and character.


RE: Go Yang!!
By Haltech on 6/4/2008 7:14:42 PM , Rating: 1
I'd have to add that the larger part of Yahoo's stock going down has more to do with the economic situation but the leadership definetly needs to think more on how to re-invent their company like they have in the past. Its just Ichan and others believe MCSFT will do better.


RE: Go Yang!!
By Ringold on 6/4/2008 11:34:50 PM , Rating: 2
quote:
I'd have to add that the larger part of Yahoo's stock going down has more to do with the economic situation


Not true. Yahoo had been in long term secular decline, hitting lower lows and lower highs since 2005, look at a chart. Meanwhile, Google had been off to the races. This year, YHOO got slammed down not due to the economy itself as much as simply steam coming out of the market, but while Google has almost completely recovered under its own power, YHOO is held up only because of the powerful expectation that Icahn will still manage to sell it. Even with that boost, over 12 months YHOO is still negative while GOOG has returned over 10%.

Speaking of MSFT, it hit was hitting multi-year highs not all that long ago. In fact, the whole tech sector has been doing pretty well over the period of time that YHOO was flat-lining.

Sorry. This sounds like a retailer blaming bad weather for a horrible quarter. Yet another retailer has a great one. What, we're supposed to believe it rained on one side of the street and was sunshine and joy on the other? Yahoo has only Yahoo to blame.


RE: Go Yang!!
By StupidMonkey on 6/5/2008 12:50:11 PM , Rating: 2
Extremely well put. Kudos to you.


RE: Go Yang!!
By spluurfg on 6/5/2008 2:31:32 AM , Rating: 2
quote:
With Yahoo! going down the tubes those employees will be out of work, anyway. MS, or some other company, will end up snatching them up. The smart ones are already leaving.


At any rate, MSFT agreed to a $1.5bn retention package ($100,000 per employee) for Yahoo employees, but that still wasn't good enough for Jerry Yang.


RE: Go Yang!!
By deeznuts on 6/4/2008 6:06:09 PM , Rating: 3
You need to go take a business class, or business law.

quote:
Personally I like the thought of the CEO that protects the employees that MS could care less and will fire on whim.
Unless the employees are shareholders, too bad so sad. The Board and Officers etc. all have a fiduciary duty to maximize shareholder value. Fiduciary duty. That means he must put shareholder interests above all else, including his own as well as that of employees.


RE: Go Yang!!
By Fusible on 6/4/2008 6:22:57 PM , Rating: 3
The thing is that some people don't get is yahoo would have kept declining steadily, which would have resulted in people been handed a pink slip either way. Or try and hand the keys to somebody who could try and keep it from coming under and maybe, just maybe use it's resources much more efficiently.


RE: Go Yang!!
By fxyefx on 6/4/2008 6:36:41 PM , Rating: 2
More like fid-douche-iary duty. >:-D


RE: Go Yang!!
By fic2 on 6/4/2008 10:21:14 PM , Rating: 2
So, basically it is ok for execs to write in such perks for themselves, but if they do it for the rank and file it is bad.


RE: Go Yang!!
By rubbahbandman on 6/6/2008 12:32:31 PM , Rating: 2
The problem was due to exceptional severence packages. Up to $15,000 in additional reimbursement plus 2 years of FULL pay on top of the standard medical and dental coverage for departing employees. One of many poison pills the Yahoo board was pushing for to prevent a merger.

Yang's only defense is the business judgment rule, but there are many instances relating to the Microsoft merger where it appears Yang did not act in "good faith" and in the best interests of the company.


"We are going to continue to work with them to make sure they understand the reality of the Internet.  A lot of these people don't have Ph.Ds, and they don't have a degree in computer science." -- RIM co-CEO Michael Lazaridis














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