Icahn Proposes His Yahoo Slate

The battle between Yahoo and activist investor Carl Icahn with Microsoft continues to mount as the August 1 shareholder meeting approaches. Icahn finalized his proposed slate of Yahoo directors. Yahoo, Microsoft, and Icahn offer varying accounts of what the proposal to break up Yahoo truly entailed. Yahoo rejected the proposal and Microsoft is no longer seriously considering the deal, according to The Wall Street Journal.

Yahoo rejected a joint effort from Microsoft and activist investor Carl Icahn. The proxy fight is intensifying as Icahn proposed Microsoft buying Yahoo’s search business and letting Icahn and his slate control the rest of the company, according to WSJ.

On July 14, Carl Icahn sent a letter calling for change. He compared the decrease of Yahoo’s operations income by 21 percent compared to Google’s increased growth in operations by 59 percent over the last two years. Icahn said that if he were elected to Yahoo’s board, he would:

• Immediately start negotiation with Microsoft to sell the whole company or, in the alternative, sell “Search” with large guarantees.

• Move expeditiously to replace Jerry Yang with a new CEO with operating experience.

In a statement, Yahoo Chairman Roy Bostock said, “This odd and opportunistic alliance of Microsoft and Carl Icahn has anything but the interests of Yahoo!'s stockholders in mind. Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders.”

Bostock said that negotiations between Microsoft and Icahn did not involve Yahoo. The “take it or leave it” proposal allowed Yahoo 24 hours to respond. “It is ludicrous to think that our Board could accept such a proposal,” said Bostock. “While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft, we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.”

Yahoo’s board believes that Microsoft and Icahn are overstating the value and understating the potential risk with the proposal. Yahoo’s conclusion is that the current proposal is not in the best interests of shareholders based on a number of factors:

• The revenue guarantees suggested are well below the search revenue that the company is expected to generate on its own and in association with its announced commercial agreement with Google (estimated to be $250 to $450 million of incremental cash flow)

• The success is dependent on Microsoft's ability to effectively monetize search

• Microsoft-Icahn's proposed Traffic Acquisition Costs rates are below market

• The proposal calls for Yahoo to sell its industry-leading algorithmic search business and its related strategic and valuable intellectual property portfolio for no incremental consideration

• The spin-off of the Yahoo Asian assets and the return of cash to stockholders, are steps that could be taken by Yahoo on its own and the board continues to evaluate these options

According to the WSJ, Bostock called Microsoft CEO Steve Ballmer and Icahn to relay the decision on Saturday, July 12. Bostock against stressed that Yahoo would still be interested in the full acquisition at $33-per-share and in revisitng the search deal after the proxy fight.

Talks may come to a standstill and would dispel rumors of reaching a deal prior to the shareholders meeting on August 1.