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Yahoo Makes Its Case To Investors

Posted on: Tuesday, 1 July 2008, 06:00 CDT

Amid a proxy battle led by billionaire investor Carl Icahn, Yahoo Inc began seeking shareholder support on Monday for the company’s executives and current board of directors.

In a 32-page shareholder presentation, the company provided details on the rationale behind the rejection of a $47.5 billion acquisition bid from Microsoft Corp., and even questioned whether Microsoft was sincere about a full-scale merger. Yahoo argued that its current board and management deserve the opportunity to prove they made the right move. 

The collapse of the Microsoft deal angered many Yahoo shareholders, and was the underlying cause behind Icahn’s proxy battle to replace nine of the company’s directors and revive discussions with Microsoft. Should Mr. Icahn gain control of the company’s board, he would dismiss Yahoo CEO Jerry Yang. 

Investors will now settle the matter in an upcoming vote scheduled Aug 1 during the company’s annual meeting, which means another 4 weeks remain for Icahn and the company to denigrate each other.

Indeed, in a posting on his blog last week, Icahn said he would be sharing his opinions on Yahoo “shortly”.

For its part, Yahoo submits that entrusting the company's future to Icahn would be reckless because his plan is focused on breathing new life into something that’s essentially a done deal.

The merger discussions hit their breaking point after Yang and Microsoft CEO Steve Ballmer failed to reach a consensus on a price.  Ballmer had made a verbal offer of $33 per share, but Yang sought $37 per share, a level the stock had not seen in 2 1/2 years.

Since Microsoft abandoned its bid, Yahoo said it tried to reinstate sales negotiations during meetings on May 17 and June 8, but were "unequivocally" rebuffed by Microsoft. Attempting to quell perceptions it had mismanaged negotiations, Yahoo provided dates of at least eight meetings that its management or other company representatives held with Microsoft prior to the bid’s withdrawal.

The company also tried to cast doubt on the sincerity of Microsoft's bid, calling Microsoft "unresponsive and inconsistent" during the first three months of discussions.

"The record casts doubt on whether Microsoft was ever committed to a whole company acquisition," the company said in its presentation.

But Ballmer left little doubt of his true intentions when he put forth his initial bid on Jan 31 of $31 per share, or $44.6 billion, a number 62 percent above Yahoo's stock price at the time.  Microsoft’s follow up verbal offer of $47.5 billion was made on May 2.

"This is simply revisionist history," Frank Shaw, a Microsoft spokesman, said Monday responding to Yahoo's claims.

Yang will be at an exclusive media investment event next week along with Gordon Crawford and Bill Miller, money managers for Yahoo's two biggest shareholders. The venue may provide Yang a golden opportunity to share his side of the story.

Miller, of Legg Mason Capital Management, and Crawford, of Capital Research Global Investors, have both been publicly critical of Yahoo's handling of the Microsoft offer.

Also attending the Sun Valley, Idaho conference will be Microsoft Chairman Bill Gates and Yahoo President Susan Decker.  The annual event, hosted by investment bankers Allen & Co., is well known for producing large business deals.

To move past the Microsoft bid, Yahoo is counting on an advertising partnership with Internet search leader Google Inc. that would allow Yahoo to use Google's technology to display some of its ads alongside its search results. Yahoo believes the move will improve its annual revenue by about $800 million while adding $250 million to $450 million in annual cash flow.

Although the Google partnership must still clear regulatory hurdles, Yahoo believes the collaboration will provide more value than the deal with Microsoft, which offered $9 billion to acquire Yahoo's online search operations along with a 16 percent in stake in the rest of the company’s business.

But in its investor presentation, Yahoo maintained the partial offer was a "bad choice" and would not have been as flexible or lucrative as the opportunity to partner with Google.

Source: redOrbit Staff & Wire Reports

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