Icahn takes on Yahoo board

by Juan Carlos Peréz

May 15, 2008 —

Billionaire investor Carl
Icahn has sent a letter to Yahoo's board announcing he is nominating 10
candidates to replace all incumbent directors at the company's shareholders
meeting in July.

The
move, rumored
since earlier this week, is intended to ultimately reignite merger
negotiations between Yahoo and Microsoft.

In the letter, distributed this morning to the press and addressed to Yahoo's
board Chairman Roy Bostock, Icahn charges the board with acting irrationally
and losing the faith of shareholders and Microsoft.

"It is quite obvious that Microsoft’s bid of $33 per share is a superior
alternative to Yahoo's prospects on a standalone basis. I am perplexed by the
board's actions. It is irresponsible to hide behind management's more than overly
optimistic financial forecasts," Icahn wrote.

Microsoft declined to comment. Yahoo did not immediately respond to a request
for comment.

Microsoft announced its $44.6 billion bid for Yahoo on Feb. 1, but walked away
from the deal three months later, on May 3, saying the companies couldn't agree
on a price. Microsoft's last offer was for $33 per share, or about $5 billion
more than its original offer, but Yahoo wanted $37 per share.

Icahn said it is "unconscionable" that Yahoo's board didn't alllow
shareholders the option to accept Microsoft's latest offer, which he pointed
out represented a 72 percent premium over the closing price of Yahoo's stock
-- $19.18 per share -- on the day before the initial Microsoft offer.

"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 on the Internet," Icahn
wrote.

Icahn decided to launch a proxy fight because in the past week "a number"
of shareholders asked him to lead such an effort to oust the current board members
and attempt to revive merger negotiations between Yahoo and Microsoft.

"I believe that a combination between Microsoft and Yahoo is by far the
most sensible path for both companies," he wrote.

Nonetheless, Microsoft officials have said repeatedly since withdrawing the
offer that the company is no longer interested in acquiring Yahoo, something
Icahn doesn't address in his letter. All along, Microsoft had indicated its
readiness to launch a proxy fight to oust Yahoo's board and replace it with
its own candidates, but eventually Microsoft decided against that option, saying
that it wasn't interested in engaging in a hostile and potentially long process.

Over the past 10 days, Icahn has bought about 59 million shares and share-equivalents
of Yahoo and assembled a 10-person slate to replace all Yahoo directors. He
has also sought antitrust clearance from the Federal Trade Commission to buy
about $2.5 billion worth of Yahoo stock.

Icahn also requested of Bostock that the board not engage in any actions that
might "in any way impede a future Microsoft merger" before allowing
shareholders "to opine on them."

This is likely a reference to so-called poison pill maneuvers or to partnerships
that Microsoft has indicated it would find undesirable, like the possible outsourcing
of a part of Yahoo's search ad business to Google.

"I sincerely hope you heed the wishes of your shareholders and move expeditiously
to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary,"
Icahn wrote in closing the letter.

Various big Yahoo shareholders have expressed their displeasure with Yahoo's
board and management for, in their view, not negotiating in good faith with
Microsoft and causing the talks to collapse. Yahoo formally rejected Microsoft's
original offer on Feb. 11, saying it undervalued the company.

On Monday, May 5, the first day of trading after Microsoft's offer withdrawal,
Yahoo's stock lost significant value, closing down 15 percent at $24.37, after
dropping as low as $22.97 during the day.

Last week, Yahoo co-founder and CEO Jerry Yang and other top Yahoo executives
tried to shift the blame to Microsoft, alleging that the $33-per-share offer
was never put in writing and that Microsoft unexpectedly walked away at a time
when Yahoo was still open to negotiating.

Meanwhile, a much-publicized deal in which Yahoo would outsource part of its
search advertising business to Google -- the possibility of which Microsoft
CEO Steve Ballmer cited as a major reason to withdraw the offer -- has yet to
be finalized, and, according to recent anonymously sourced press reports, has
lost steam.

Icahn is well-known for taking to task the CEOs of companies he invests in
when he feels they aren't doing a good job of delivering shareholder value.

Icahn's slate is made up of himself -- chairman and a director of privately
held Starfire Holding, and chairman and a director of various Starfire subsidiaries
-- and the following people:

-- Lucian A. Bebchuk, the William J. Friedman and Alicia Townsend Friedman
Professor of Law, Economics, and Finance, and director of the Program on Corporate
Governance at Harvard Law School.

-- Frank J. Biondi, Jr., senior managing director of WaterView Advisors, an
investment advisor organization and a former chairman and chief executive officer
of Universal Studios.

-- John H. Chapple, president of Hawkeye Investments, a privately owned equity
firm investing primarily in telecommunications and real estate ventures.

-- Mark Cuban, Internet entrepreneur and majority and controlling owner of
the NBA's team Dallas Mavericks.

-- Adam Dell, managing general partner of Impact Venture Partners, a venture
capital firm focused on information technology investments.

-- Keith A. Meister, principal executive officer and vice chairman of the board
of Icahn Enterprises and a managing director of Icahn Capital, the entity through
which Icahn manages third-party private investment funds.

-- Edward H. Meyer, chairman, CEO and chief investment officer of Ocean Road
Advisors, an investment management company.

-- Brian S. Posner, a private investor who from 2005 through March 2008 served
as CEO and co-chief investment officer of ClearBridge Advisors, an asset management
company.

-- Robert K. Shaye, co-chairman and co-CEO of New Line Cinema.

IDG News Service