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Icahn Wants Yahoo Board Fired Over Microsoft Bid

Posted on: Wednesday, 4 June 2008, 00:20 CDT

The details concerning Microsoft Inc’s takeover bid for Yahoo Inc. have become so complicated that activist investor Carl Icahn says he believes Yahoo's board will have to be fired before the company will continue discussions.

Icahn is seeking to remove Jerry Yang as Yahoo chief executive, citing the company's failure, so far, to reach a merger or partnership deal with Microsoft Corp.

He said he was amazed at the lengths that Jerry Yang and the board went to entrench themselves in this situation.

Icahn filed plans nearly three weeks ago to lead a shareholder revolt against Yahoo's board.

Yahoo scheduled its annual shareholders meeting for Aug. 1 in San Jose—they have already delayed the meeting twice.

Icahn believes Yang and Yahoo's board have antagonized Microsoft too much to get a deal done.

"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?” said Icahn.

Microsoft withdrew an oral offer of $47.5 billion, or $33 per share, a month ago after Yang sought $37 per share, or about $52 billion.

Icahn, who has spent more than $1 billion so far to acquire a 4.3 percent in Yahoo, indicated he would give further details on his campaign to overthrow the board in the next day or so.

Yahoo released a statement saying its 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."

In the wake of the failed takeover bid, the two companies have acknowledged discussing an online search deal that wouldn't meld the two companies together completely . But Microsoft said they would still consider reviving talks to take over full control of the company.

Still, the battle between Icahn and Yahoo could get worse before the matter comes to a shareholder vote. Yahoo estimated it will spend about $12 million fighting the battle.

Unsealed court documents have showed Yang's efforts to increase the costs of a potential Microsoft acquisition, spurring Icahn’s latest attack on Yahoo’s board. The records were obtained as part of a shareholder lawsuit alleging Yahoo's board has improperly resisted Microsoft's overtures dating back to August 2006.

The lawsuit argued that Yahoo had taken aggressive steps to block a deal, including the adoption of a costly plan to retain employees, leading up to a breakdown in talks with Microsoft.

Yang pushed for an employee severance package that guaranteed generous cash and stock payment to all 13,800 of Yahoo's workers if they were fired or quit after being reassigned to another job within two years of a Microsoft takeover.

Yahoo's internal records estimated the severance plan would have cost Microsoft an additional $462 million to $2.1 billion if a deal had been done at the initial bid of $31 per share. The severance costs would have ranged from $514 million to $2.4 billion if Microsoft had raised the bid to $35 per share.

However, Microsoft CEO Steve Ballmer told Yang the software maker intended to offer Yahoo employees $1.5 billion in retention packages.

"It's no longer a mystery to me why Microsoft's offer isn't around," Icahn said. "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."

News Corp Chief Executive Rupert Murdoch dismissed Icahn's role in the Microsoft-Yahoo tangle as a distraction.

"Look, he wants to make himself a few hundred million dollars," Murdoch said. "For Microsoft it is helpful noise. If I were Yahoo, I wouldn't worry about it."

Icahn plans to use some of the unsealed information to persuade Yahoo shareholders to oust the company's board. Meanwhile, Yahoo is recommending its shareholders don't sign any cards supporting Icahn's alternate slate of directors.

According to Tuesday’s SEC filing, if at least five of Icahn's candidates are elected, it will trigger a "change-in-control" provision entitling Yahoo's top five executives to severance packages with a combined value of $24.7 million.

Yahoo shares were off 11 cents at $26.29 in extended trade after the Nasdaq close.

Source: redOrbit Staff and Wire Reports

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