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Carl Icahn has been a major guiding hand in past corporate tech battles, and he's stepping into the Yahoo fray to try to oust its board.  (Source: Chip East/Bloomberg News)
Icahn leads insurgent candidates in board ouster attempt

Yahoo rejected Microsoft's advances and demanded more money, Microsoft dropped its bid, Yahoo said it might want to make a deal, but Microsoft said no way.  Thus the Microsoft-Yahoo saga, ended, correct?  Not quite, it appears that a new chapter is about begin as Yahoo faces its most significant threat to its independence, this time from within.

Over the last week, billionaire investor Carl Icahn has been amassing shares, and not so quietly building a massive stake in Yahoo.  Now Icahn is moving ahead with plans to run a slate of dissident board members who if elected will force the company to sell itself to Microsoft.

Last night Icahn selected his "dream team" of 10 new directors, including himself.  His other selections are Keith Meister, vocal Dallas Mavericks owner Mark Cuban , and Viacom's former chief executive Frank J. Biondi Jr.

In a letter to Roy Bostock, current board chairman, he blasts Bostock and the board's handling of the Microsoft situation and their leadership.  He says, "the board of directors of Yahoo has acted irrationally and lost the faith of shareholders."

He continues, "It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis....it is irresponsible to hide behind management's more than overly optimistic financial forecasts."

Icahn condemned the board's failure to put the issue to a shareholder vote calling it "unconscionable".  He states that a merger is the only good option, saying, "I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with (Google Inc.)"

Icahn's other candidates are Lucian Bebcuk, John Chapple , Adam Dell , Edward Meyer, and Brian Posner.  Many of these individuals have worked with Icahn in past proxy fights.  Icahn said he moved to engage in proxy war at the bequest of Yahoo shareholders after they became dissatisfied with the half-hearted attempt at a merger, something which he and the shareholders, he says, feel that "the current board has completely botched".

Icahn purchased around 59 million Yahoo shares, valued at around $1.5B USD.  Meanwhile, Microsoft quietly requested antitrust clearance from the Federal Trade Commission to acquire $2.5B USD of Yahoo stock, which it could used to help Icahn in his fight.  In a reversal of past policy, Icahn is soliciting Microsoft for a bid, while Microsoft has remained silent.  Icahn has recruited the help of proxy company D.F. King for the solicitation.

Some suspect Yahoo's leadership may try to cut a deal with Icahn giving him a couple board seats if he's willing to drop his proxy battle.  Earlier this year, such a deal was cut between New York Times Co. and a dissident board slate, giving them 2 of 15 seats.  However, some suspect no deal will be made as a couple seats would be unlikely to be enough to further negotiations with Microsoft, Icahn's purported primary objective.

Icahn has been a major force in past deals.  He forced BEA Systems to be sold to Oracle Corp. earlier this year.  He completed a fiercely fought proxy battle with Motorola Inc., which end in him designating two board seats, and being promised by Motorola that it will spin off its mobile devices unit.  He also forced Time Warner Inc. to adopt a number of major policy reforms.  Icahn also had a hand in the recent Blockbuster and Circuit City deal.



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The Beginning
By Master Kenobi (blog) on 5/15/2008 10:56:07 AM , Rating: 5
And so it begins... First the board, then the company. If Microsoft is smart they will lower their new price to around $30. All they need to do is sit back and wait, let Yahoo mull it over and come to the table for a lower price.




RE: The Beginning
By PitViper007 on 5/15/2008 11:00:25 AM , Rating: 1
Agreed.


RE: The Beginning
By othercents on 5/15/2008 11:05:07 AM , Rating: 2
Is that before or after all the Yahoo employees jump ship and get hired on by Microsoft?

Other


RE: The Beginning
By SiN on 5/15/2008 11:56:21 AM , Rating: 2
MS wants to use Yahoo IP, not their staff. Although some staff will hold the IP key (metaphoricly speaking in their engineering skills).

Yahoo staff have no gaurentee a place in MS, unless they can prove they are a valuable asset, after MS takes whatever working IP is usable from Yahoo.


RE: The Beginning
By robertgu on 5/15/2008 2:06:47 PM , Rating: 2
That thinking does not seem to be supported by the facts. If you research the history of the other internet related company buys by Microsoft. You'll see they mainly brought the companies for the employees.

Most of the employees have been hired on and the executive teams of those companies are now head of divisions in Microsoft. The backoffice operations of the purchased company (HR, Finance, etc.) are the ones I've seen getting let go more, but the core marketing, development, and executive staffs, I've seen them almost universally being retained as long as they want to work for Microsoft.


RE: The Beginning
By Samus on 5/15/2008 5:22:33 PM , Rating: 2
Yahoo has no IP of interest. Maybe Yahoo mail, but all their other projects have failed.


RE: The Beginning
By jtesoro on 5/16/2008 6:50:35 AM , Rating: 4
The Yahoo brand?


RE: The Beginning
By imperator3733 on 5/19/2008 1:44:41 PM , Rating: 2
Yeah, I think Microsoft mostly wants the brand (as well as web traffic and advertising). They most likely also want the employees, but that is probably a secondary goal.


RE: The Beginning
By Oregonian2 on 5/16/2008 1:38:48 PM , Rating: 2
quote:
MS wants to use Yahoo IP, not their staff. Although some staff will hold the IP key (metaphoricly speaking in their engineering skills).


Despite having various managements attempt to try that, it's been my observation that at least in high-tech that's non-military, it doesn't usually work. The value and knowledge of how things are done, the real IP is in people's heads and abilities. May be a trite thing to say, but "It's the people stupid" applies. Ones that try to just keep "key" people as I interpret you to suggest (usually managers who are the most "IP-free" ones to pick) usually don't work either. I'm sure there are exceptions, but that's been my observation.


RE: The Beginning
By five40 on 5/15/2008 11:53:13 AM , Rating: 2
I can see it being under $30 at this point. MS seems to be in the drivers seat on this one.


RE: The Beginning
By wordsworm on 5/15/08, Rating: 0
RE: The Beginning
By borismkv on 5/15/2008 12:19:26 PM , Rating: 4
Actually, selling at $30 a share would net him a more than 10% instant profit.


RE: The Beginning
By borismkv on 5/15/2008 1:43:02 PM , Rating: 2
You know, that being said, the 37 a share that Yahoo demanded isn't far off from Yahoo's high for the year. It shot into the bucket and bottomed out at 15-16 a share, but then the possibility of a Microsoft Buyout shot it up to 30 a share, which makes the 31 offer Microsoft originally made a lot less desirable. 33 was more realistic, but I'm pretty sure that Yahoo can make an argument for asking at 35.

Realistically, though, Yahoo's gotten itself into a major pickle. I have no doubt that Icahn was working on a deal with Microsoft for a while, and that he'll likely get a hostile board to sell for less than 30. After all, that will net him well over a 100 million bucks.


RE: The Beginning
By spluurfg on 5/16/2008 4:47:01 AM , Rating: 2
quote:
You know, that being said, the 37 a share that Yahoo demanded isn't far off from Yahoo's high for the year.


And $130 isn't far from Bear Stearn's high this year. Doesn't matter what it was trading at yesterday -- the stock price reflects the market's expectation of earnings, growth, and (in this case) an acquisition. If I bought Bear Stearns at $100 and someone offered to buy my stake at $30 a couple months ago, I'd be pretty darn happy.

Likewise, the PE ratio on Yahoo is still trading at 53, compared to 33 for Google. Surely there's some lofty premium built in for Yahoo on the expectation that a merger will take place. And that's only at 27/share... Jerry wanted 73x earnings per share. What kind of lunatic would pay that?


RE: The Beginning
By Fusible on 5/15/2008 3:24:20 PM , Rating: 2
You guys have to remember thats it's not only up front profit but also foreseeable is future profits from the stocks they receive from Microsoft thats part of the deal.


RE: The Beginning
By wordsworm on 5/15/2008 6:55:49 PM , Rating: 2
MK suggested that he'd buy it at $25 and sell at $20. If he buys it at $25 now and sells at $30, that's a different story.

Worst case scenario for everyone is that he wins, but Yahoo still isn't interested, and there's a this board who only knows how to run a company into the ground.


RE: The Beginning
By OddTSi on 5/15/2008 5:20:05 PM , Rating: 4
According to this article he bought 59M shares at roughly $1.5B. That's a little over $25/share. If it sells for $30 that's $5 MORE than he paid not less. At that price he made a 20% profit in a few months.


If a new deal happens...
By mikefarinha on 5/15/2008 11:03:09 AM , Rating: 2
If Yahoo! does end up offering to sell I hope Microsoft doesn't pay more than $31/share for it.




RE: If a new deal happens...
By FluxCap on 5/15/2008 11:57:20 AM , Rating: 2
I am thoroughly enjoying this entire saga. I am hoping for a made for TV movie eventually (being serious).


RE: If a new deal happens...
By BadAcid on 5/15/2008 12:17:36 PM , Rating: 4
They'll somehow adapt it and throw in a murder for an episode of Law and Order at the least.


RE: If a new deal happens...
By Ringold on 5/15/2008 2:22:57 PM , Rating: 5
I can see it now: A group of disgruntled YHOO shareholder homies, cruisin' down the street in an old Cadillac. They come to a stop at a red light, glance over -- and behold, Jerry Yang is walking out of a Starbucks, looking gay as ever, double-tall in hand.

We know how it goes from there.


RE: If a new deal happens...
By SiliconAddict on 5/16/2008 2:14:55 AM , Rating: 2
Pirates of Silicon Valley 2: Microsoft Strikes Back.


Opening line
By Lonyo on 5/15/2008 11:25:51 AM , Rating: 5
The opening comment of this article is just plain wrong.

quote:
Yahoo called Microsoft's bluff and demanded more money


Microsoft called Yahoo's bluff in asking for more money BY dropping the bid. Now Yahoo shareholders are upset and probably more willing to take a lower offer than they were before.
MS called Yahoo's bluff, not the other way round.




RE: Opening line
By mikefarinha on 5/15/2008 12:05:44 PM , Rating: 2
I agree, usually calling a bluff implies that one player was trying to get ahead of another player while holding a weaker hand. Thus bluffing that they had the superior hand.

Yahoo had the weaker hand and tried to make too much of it, Microsoft called their bluff.

However, neither of them really 'won.' Unless you count the fact that Yahoo!s stock is still a bit inflated due to the shareholders still clinging to hope of a buy out at $33/share.


The one thing this saga has taught us ?
By Reclaimer77 on 5/15/2008 2:13:41 PM , Rating: 2
If theres one thing I have learned from reading about this continuing saga is that, if I ever founded a company worth millions, I wont be taking it public.




RE: The one thing this saga has taught us ?
By Ringold on 5/15/2008 2:28:50 PM , Rating: 2
I'm not sure why a company would take itself public worth just 'millions', but look at it another way. Lets say you've got a company built up worth hundreds of millions, or a billion or more. Lets say you want to cash out in return for your years or decades of work building this company up. Quickest way to do it? Go public. Or lets say you want to expand. Could go to the bond market, sure, or a line of credit from a bank. Those charge interest, though, and both expect some level of financial performance in order to consider you a safe risk. Jump through just a few more hoops to take ones self public, and get a lot of the proceeds interest free -- sort of.

It's really only painful because Jerry Yang has made it so.


By goku on 5/16/2008 12:07:51 PM , Rating: 2
You (your company) pay a dividend, so what exactly is free again?


Haha
By leidegre on 5/15/2008 4:12:12 PM , Rating: 3
It's like Gates and Icahn have been friends for a long time, and this was the plan all along. Poor Jerry...




carl icahn is a corporate raider
By goku on 5/16/2008 12:19:30 PM , Rating: 1
http://en.wikipedia.org/wiki/Corporate_raid

All you have to do is read his wiki and you'll see that he basically killed TWA airlines. Icahn doesn't give a shit about yahoo, all he cares to do is make a quick buck.
http://en.wikipedia.org/wiki/Carl_Icahn

Another interesting factoid is that he is on the board of directors for Blockbuster.




another overrated...
By BigB on 5/17/08, Rating: -1
RE: another overrated...
By goku on 5/19/2008 1:59:36 PM , Rating: 1
You speak like as if one can't be greedy and NOT be a Jew.. I'm a Jew and I take offense to that. Not every Jew is greedy, in fact I don't know any greedy Jews, if anything the ones I know are broke, stupid and wasteful much like any other American. The ones I know are incapable of saving a penny and when they come across a lump some of money, they manage to squander it. Yet at the same time, they're nice people, they don't cheat or steal, they don't try to "game" anybody or anything, at best they're victims of a society that takes advantage of them and at worst they're irresponsible and naive.

I think your bigotry is out of ignorance and based off of old world superstitions. I'd say there are a lot more "legitimate" Jews than there are "illegitimate" non Jews. Last I checked, our prisons weren't exactly being filled to the brim with all the "greedy, evil Jews" like many people make them out to be. (This is an understatement)


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