Icahn Ramps Up Pressure, Vows To Get Jerry Yang Fired (YHOO)

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carl-icahn.jpgNow it's official: Carl Icahn has said publicly that he wants to get Yahoo (YHOO) co-founder Jerry Yang fired as CEO for blowing off Microsoft's $44.6 billion bid, the Wall Street Journal reports.

Like most of Icahn's public statements, this one is carefully designed...to increase the pressure on Yahoo's board and Jerry Yang. The last thing Icahn wants to do is actually go through a nail-biting proxy fight, especially with no plan as to how to run the company if he wins (sacking the CEO is only the first step. Who's going to run Yahoo after Jerry goes? Frank Biondi?). So far better if Carl can scare Yahoo / Jerry into a deal BEFORE the shareholder meeting. Thus the usually artful Icahn rhetoric in the WSJ:

Mr. Icahn said he is convinced that executives of Microsoft, which withdrew its takeover offer last month for Yahoo, no longer trust Mr. Yang and won't make a new bid -- as Mr. Icahn and many investors are hoping for -- unless Mr. Yang and the company's board are ousted.

"I'm very cynical about many of the boards and CEO's in this country, but even I am amazed at the lengths that the Jerry Yang and the board went to entrench themselves in this situation," Mr. Icahn said.

Meanwhile, a Yahoo spokesperson denies that the company got a $40 offer from Microsoft in January 2007, a prominent detail in the lawsuit unsealed yesterday. This denial is surprising: The $40 detail did not surprise many people, and even those close to the company have talked about how Microsoft had offered $40 in the past.

Yahoo's board is scheduled to meet today, a source tells the WSJ.

More to come...



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40 Comments

dmac said:
So Henry - how do you see this thing playing out over the next couple of weeks? Kara on ATD seems to think something has to happen this week, Marcial at Business Week said things were imminent (last Thursday or so). What about you, see anything happening soon on this? Or does it go into the July Shareholder meeting?

I don't think it goes to the shareholder meeting. If Icahn takes control and decapitates Yahoo's senior management, this is an invitation for Microsoft to cut its bid to $28-$29 on the (very plausible) theory that Yahoo will immediately disintegrate.

I think Icahn & Co. light every fire they can and try to force a deal as quickly as possible. This week? Who knows. I'm pretty sure no one else does, either, though.

Put a Fork In It said:
Carl should either exercise his options or shut up.

Nothing is ever going to happen. Bill and Ballmer have moved on. GOOG gets as much downside as upside from helping YHOO. Does Sergey really want/need to prop up YHOO if MSFT doesn't give a crap anymore?

Gordon Crawford, old media genius, soon to be next CEO of YHOO. He still thinks Terry Semel did a heck of job.

joeblow said:
Yeah, I can just see Yang trembling.

I mean, we already got the general idea, Carl, that you wanted to fire Jerry.

We were cued to the notion with the letter and the slate filing.

Try to at least come up with something original or entertaining, maybe an interesting anecdote that might render Yang fearful in some demonstrable way.

Oli Burgess said:
I wonder what conclusion they'll reach at this meeting?

I believe YHOO BOD will announce a deal with GOOG after today's board meeting (if there is one). I'm sure during all the recent discussions with MSFT, including the one in the golf cart, they may have offered other low-ball offers and ways of breaking up YHOO, which won't be acceptable to YHOO. MSFT has made amply clear that they are not interested in full acquisition at this time. Their stock in tanksterville confirms that even if they want to acquire YHOO completely, there is no reasonable way that their stock can support such a deal. The key detail in Icahn's announcement today is that now he is convinced as well that there is no quick deal with MSFT acquiring YHOO completely as he was hoping for. He must be tracking MSFT stock with the same intensity as his YHOO holdings to have reached this conclusion.

Since the full deal with MSFT is unlikely and NOBODY, including the activist shareholders in YHOO, other than MSFT, is interested in a partial deal, what are the options? Only alternative for YHOO board is to sign a deal with GOOG and hope to win the proxy fight based on the results of that deal.

Kev said:
***utter crazy talk ahead***

At D6, Jerry mentioned that the media had completely misunderstood what might be involved in a GOOG tie-up. It'd be rather fun if YHOO chose to abandon search in favor of a meta approach: sell search to Ballmer, and let GOOG and MSFT compete for searches from YHOO property, perhaps using a randomized scheme based on monetization. YHOO could get the highest $$$ per query in such an arrangement, and MSFT and GOOG would have a level playing ground.

Does anyone remember metacrawler? It didn't monetize traffic in a "meta" (or auction) form, but that would seem to be the natural evolution of things.

Thomas said:
This meta-type of monetization could be could be possible, but do you really think Yahoo! is about to turn into http://www.dogpile.com?? This is not the answer - and, besides, who uses dogpile anyway. What a name. I'm amazed they still exist. Meta-search is out - results ,relevancy, and algorithms are key.

The above posts may be referring to a meta type of advertising deal, but not replacing or combining search.

Michael said:
I see Yahoo rescheduled the board meeting for August 1st. Does anyone know if there is a time constraint by which they must legally hold the meeting?

joeblow said:
This latest public pressure by Icahn is not directed at Yang.

It's directed at Ballmer.

It's saying "Ballmer, you'd better act and act quickly or I'll force Yang into a Google deal."

To be honest, I'd send the Yahoo board flowers if they'd do a deal with Google. I wish Yang would get so far up Brin and Page's butts it'd tickle their uvulae.

Ralph said:
Henry,

So how is it that Yahoo can move their annual meeting to August 1st, when I thought as a Delaware co they MUST have the annual meeting within 13 months of the last one?

Isn't this irresponsible on the board's part, as it will just result in more of Yahoo's (shareholder's) money being wasted defending additional lawsuits to COMPEL them to have the meeting by July 12th? (which is actually 13 months after the June 12th 2007 meeting?

Thanks

Here is a nugget from YHOO's sec filing today. If I'm interpreting this correctly, then YHOO shareholders, especially the big ones, won't dare to vote for Icahn slate - because if Icahn wins a majority, it may trigger the poison pill automatically. Anyone else would like to weigh in?

I see this heading to a Delaware court one way or the other.

http://www.sec.gov/Archives/edgar/data/1011006/000089161808000295/f37157r1prer14a.htm#104


"As previously noted, the Icahn Entities have provided notice that they intend to nominate their own slate of ten (10) nominees for election as directors at the annual meeting. Under the Change in Control Severance Plans, a change in control is deemed to have occurred if the members of the Board of Directors as of February 12, 2008 (and any new directors whose appointment, election or nomination to the Board of Directors was approved or recommended by a vote of at least two-thirds of the directors then in office who were either directors on February 12, 2008 or whose appointment, election or nomination for election was previously so approved or recommended) cease for any reason to constitute a majority of the Board of Directors. If five or more of the Icahn Nominees are elected to the Board of Directors at the annual meeting, a change in control will be deemed to have occurred for purposes of the Change in Control Severance Plans."

thomas said:
i'm voting my 24K shares for icahn - unless jerry is able to convince me otherwise before the meeting. i believe major shareholders feel the same. imo - he is done

I don't think the language above refers to the poison pill--I think it's the lucrative Severance Plan.

Re the timing of the meeting...I think they would have to be sued and lose to be forced to reschedule earlier.

mahendra said:
Well, I think that Icahn is playing abt foolishly. Even if he wins, is he having the capacity to handle Yahoo!? I don't think so...Microsoft will then easily acquire Yahoo at a much lower cost which will ultimately result in loss to the shareholders.

I would prefer voting against Icahn.

joeblow said:
**The below are my layman’s observations drawn from the referenced and linked information and my assumptions made here may be incorrect**

http://delcode.delaware.gov/title8/c001/sc07/index.shtml#TopOfPage

Quoting from section 211 (Meetings of Stockholders):

“If there be a failure to hold the annual meeting or to take action by written consent to elect directors in lieu of an annual meeting for a period of 30 days after the date designated for the annual meeting, or if no date has been designated, for a period of 13 months after the latest to occur of the organization of the corporation, its last annual meeting or the last action by written consent to elect directors in lieu of an annual meeting, the Court of Chancery may summarily order a meeting to be held upon the application of any stockholder or director.” (end)
--
It appears to me that in order to avoid the possibility of the Court of Chancery summarily ordering a meeting and setting the date, Yahoo had to have “designated” a meeting date within 13 months of the last date (they did – initially for July 3, 2008, less than 13 months after June 12, 2007), and now that they have designated the date, they’ll have to “hold” the meeting not later than 30 days after that designated date.

Aug 1 is exactly 29 days after the initial date of July 3, 2008. I think if they delayed it again to later than 30 days after July 3, 2008, anyone with reason to object could appeal to the Delaware Chancery Court to intervene and order the meeting to be held.

Unless I’ve misinterpreted this, it appears Yahoo has generally employed a delaying tactic of its annual meeting to within 1 day of the ordinary maximum limit allowable under Delaware corporate law. In thinking about the distinction between “designating” and “holding” I’m reminded of a funny Seinfeld episode, as if he were saying instead "It's not the designating... it's the h-o-l-d-i-n-g... the h-o-l-d-i-n-g. Anybody can designate, but you have to hold it... it's the h-o-l-d-i-n-g.":

http://www.youtube.com/watch?v=9FIpLWUT3yw




joeblow said:
Ralph,

What that means is that apparently the 13 months spoken of in the press back weeks and weeks ago actually can be squeezed into as much as approximately 14 months.

Had Yahoo designated July 12th (approx) as the annual meeting date, it would have complied with Delaware corporate law regarding the 13 month rule, and then having the meeting within 30 days more would just about clock in at 14 months of delay.

Unless I've overlooked something, and there has to be a reason why Yahoo can hold the meeting later than 13 months after June 12, 2007, so I guess I may be right in this analysis.

joeblow said:
Question:

Henry,

http://www.businessweek.com/technology/content/jun2008/tc2008063_964763.htm?campaign_id=yhoo

Quoting:

"Sandeep Aggarwal, an analyst with financial-services firm Collins Stewart (CLST.L), estimates that if Microsoft paid $15 billion for Yahoo's search operation and $3 billion a year to run ads on Yahoo Web pages, such a deal could add up to $9 a share to Yahoo's stock price—well north of Microsoft's last offer of $33 a share." (end)
--
Can you get there, Henry?... Do the numbers make sense and would you imagine MSFT would pay these amounts?

Intheknow said:
Yahoo employees are dropping like flies, especially from the development groups, according to one senior manager I spoke with yesterday.

They are not confident in senior leadership, and are hoping that Microsoft does purchase the company.

Neek said:
So.. bottom line is.. what? Icanh has his cheezburger, gets Yang fired, and still makes hundreds of millions fast even below $30 after selling it to Microsoft (who gets it at an even lower amount). Everybody's happy except the morons who have time and again tried to deny Redmond's advances. Is that about right?

So er, where was the part that this was a bad thing?

Mike Gittins said:
.
The following is the text of a letter Carl Icahn sent to Yahoo Inc. Chairman Roy Bostock June 4.

Dear Mr. Bostock:

I have long been cynical about the effectiveness of many of the boards and CEOs in this country and as a result the inability of our companies to compete. I have constantly complained about how far CEOs and boards will go in order to retain their jobs, yet even I am amazed at the length Jerry Yang and the Yahoo board have gone to in order to entrench their positions and keep shareholders from deciding if they wished to sell to Microsoft.

According to details in a complaint that I became aware of yesterday (details Yahoo fought to keep under seal), Jerry Yang and a majority of the board went to inordinate lengths to sabotage a Microsoft bid. The complaint states: "Viewing employee retention as Microsoft's Achilles heel, Yang engineered an ingenious defense creating huge incentives for a massive employee walkout in the aftermath of a change in control. The plan gives each of Yahoo's 14,000 full-time employees the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover, by claiming a "substantive adverse alteration" in job duties or responsibilities." The damage to Microsoft "is compounded by the fact that Yahoo's thousands of engineers, known as "Technical Yahoos!," have detailed job responsibilities and qualifications."

Most importantly, Microsoft might never be able to trust a CEO and board who, while claiming to be negotiating in good faith, went behind their back and adopted a "plan" which not only sabotages any Microsoft acquisition but went so far as to completely disable its own ability to rescind the "plan" as long as Microsoft's offer remains pending. Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies. I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board. In my opinion, it will be extremely difficult for Microsoft or other companies to trust, work with and negotiate with a company that would go to these lengths.

It is insulting to shareholders that Yahoo for the last month has told us that they are quite willing to negotiate a sale of the company to Microsoft and cannot understand why Microsoft has walked away. However, the board conveniently neglected to inform shareholders about the magnitude of the plan it installed which made it practically impossible for Microsoft to stay at the bargaining table. Could this have been the problem?

Even more deceitful are Yahoo's actions toward its own employees, for whom you claimed to have set up the "plan". Management neglected to mention to these same employees that Microsoft in its proposals had earmarked $1.5 billion of retention incentives (representing over $100,000 per employee) meant to allay any employee concerns.

Ironically, according to the complaint, this is not the first time that Yahoo has denied shareholders the opportunity of selling to Microsoft at a large premium. According to the complaint, in January 2007 Microsoft offered to purchase Yahoo at $40 per share but the company rejected that proposal. On January 31, 2008, Steve Ballmer emailed a letter to Jerry Yang and Roy Bostock making a new proposal of $31 per share. The letter recounts Microsoft's prior efforts to acquire Yahoo and noted that Microsoft had given Yahoo time to implement business strategies designed to turn the company around. These strategies obviously didn't work. The letter went on to state: "Our proposal represents a 62% premium above the closing price of Yahoo! common stock of $19.18 on January 31, 2008." Yahoo not only turned down this proposal but sabotaged it. An article in CNET News cited in the complaint sums it up by stating, "Yahoo may indeed agree to Microsoft's [offer], but it will be over Jerry Yang's dead body".

I and many of your shareholders believe that the only way to salvage Yahoo in the long if not short run is to merge with Microsoft. However, because of HSR considerations, to complete a merger of this magnitude will take a period of time. Even if by some stretch of the imagination the Yahoo board finally determines to do the rational thing and sell the company, I fear that, in light of Yang and the board's recent actions in response to Microsoft's overtures, it may be too late to convince Microsoft to trust Yang and the current board to run the company during that period while Microsoft sits on the sidelines with $45 billion at risk. Therefore, the best chance to bring Microsoft and Yahoo together is to replace Yang and the current Yahoo board with a board that will negotiate in good faith with Microsoft and in whom Microsoft will have trust to operate the company during the long period between signing and closing.

You stated in a press release yesterday that, "Yahoo's 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." However this is not crystal clear to me. You have allegedly turned down a $40 offer. You have turned down and sabotaged a $33 offer. Instead, you appear willing to negotiate an "alternative" deal that in my opinion will be worth less than $33 but will entrench the board and Jerry Yang. I understand how these actions are in the best interests of management and a board whose members each receive $40,000 per month for several days work, but it is hard for me to understand how these actions are in the "best interests of the shareholders."

However, despite your actions to date, there is still some possibility that you can resuscitate a Microsoft offer for the company. The board can rescind the "severance plan" that is the largest impediment to a Microsoft deal. You currently can do this because Microsoft withdrew their bid 30 days ago. It is time for you to stop misleading your shareholders with respect to Microsoft. It has been reported today that when asked to talk about the Microsoft bid, Sue Decker indicated that Microsoft made an offer which Yahoo's board didn't feel was at an attractive enough price. However, one doesn't have to be a rocket scientist to realize there is a simple method to possibly achieve a higher price. Simply rescind the poison pill "severance plan", which would free up approximately $2.4 billion and possibly even more which could be added to the bid. It is also time to admit to your shareholders that the severance plan was not done for your employees (who you conveniently neglected to inform that Microsoft had earmarked $1.5 billion in retention incentives for), but rather was done simply as an entrenchment device and to impede a Microsoft bid. If you are not completely disingenuous in your protestations concerning doing "the right thing" for shareholders, you should rescind the severance plan expeditiously and determine if Microsoft is still willing to purchase our company and thereby create a true competitor for Google. I can only hope that you will finally do what is in the "best interests of the shareholders."

Sincerely yours,

CARL C. ICAHN

Henry, as I mentioned earlier, the severance agreement or the poison pill, whatever we call it, applies to all full-time employees in YHOO, not just the top executives. Also from the YHOO sec filing yesterday, this poison pill would get triggered even if Icahn takes control of the board (i.e >=5 board members). So it would be difficult for Icahn to rally support for his slate, with the "change in control" provisions that guarantee significant benefits to _ALL_ fulltime employees of YHOO. MSM seems to miss this point.

Icahn's letter sounds like a ploy to get rid of this change in control provision, so that its easier for him to rally support for a proxy fight. I can't imagine big shareholders supporting Icahn's slate unless the new change in control provisions are taken out by the current YHOO BOD. Based on the history so far, its going to be an uphill battle for Icahn trying to get YHOO BOD to take off the provisions without a stronger and well-defined offer from MSFT. MSFT could offer a better offer conditional on YHOO taking off those provisions. But considering the beating its stock has taken so far, this is very unlikely.

YHOO can respond to Icahn letter saying that they are just trying to retain and attract employees with these new change in control provisions - considering that MSFT's offer has caused significant uncertainty as to the future direction of the company.

From YHOO's filing: "The Change in Control Severance Plans are designed, in light of the uncertainty caused by the Microsoft proposal, to help retain the Company’s employees, maintain a stable work environment and provide certain economic benefits to the employees in the event their employment is actually or constructively terminated in connection with a change in control of the Company."




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