The IT Nerd

This press release just crossed the wires. It seems that there is peace between Yahoo and Carl Icahn now that’s it’s official that his two picks are on the Yahoo board. Jerry Yang even has a few nice things to say:

“No other company in the Internet space has our unique combination of a global brand, the industry’s best talent, innovative technologies and exceptional assets; strengths we believe will help us take advantage of the opportunities we see ahead. I look forward to working together with Frank, John, and the rest of our board to continue the progress we’ve made on our strategy to be the starting point for the most Internet users, a must buy for the most advertisers, and to develop the world’s most open platforms.”

Whatever. Sadly, this won’t keep Yahoo out of the news for all the wrong reasons. But at least one of those reasons won’t be Carl Icahn.

It seems the nasty proxy battle between Carl Icahn and Yahoo is over. Yahoo has argeed to hand over three board seats to Icahn in exchange for him dropping the proxy battle. Besides taking a board seat himself, Icahn will be able to recommend two other directors (likely from the bunch that he named as part of his “gang of nine“). Eight of Yahoo’s nine current directors, including Yahoo CEO Jerry Yang, will fill the remaining seats. One Yahoo director by the name of Robert Kotick will not stand for re-election. By the end of this, the Yahoo board will have 11 seats.

This does not however settle the fate of Yahoo in terms of if Microsoft takes some or all of it over. Nor does it likely deal with the fact that Icahn created all sorts of ill will during the proxy battle. So this soap opera is not quite over yet.

Oh yeah, Yang better watch his back.

When it comes to proxy battles, the only shareholders that matter are Institutional ones as they hold large amounts of stock and can influence which way these battles go. Therefore it’s a good thing for Yahoo that Legg Mason Capital Management who owns 4.4% of Yahoo stock has said that it will vote for Yahoo’s current board:

“We believe the current Board acted with care and diligence when evaluating Microsoft’s offers. We believe the Board is independent and focused on value creation for long-term shareholders,” Bill Miller, chairman and chief investment officer of Legg Mason said in a release.

If other Institutional investors follow the same path, Icahn may not win this battle. Expect similar statements to start appearing over the next few days.

UPDATE: Yahoo now has a site that gives its spin on the proxy fight.

In the latest salvo in the ongoing war between Carl Icahn and the Yahoo board led by CEO Jerry Yang, The latter decided to stir the pot write a letter to Yahoo shareholders. In it he says why Icahn’s plan won’t work:

“Mr. Icahn has made it clear that his only objective is to sell part or all of Yahoo! to Microsoft. That fact, combined with his lack of an operating plan going forward, means that he will have no leverage to negotiate a fair deal with Microsoft. He has set himself up for failure.”

and:

“Second, Mr. Icahn and his slate lack the working knowledge of Yahoo! and its Internet business needed to do two things that are required to successfully deliver a value-enhancing transaction for Yahoo! stockholders. First, they do not have the detailed knowledge to negotiate a complex restructuring of a large, innovative high technology company in a rapidly changing environment. Second, they do not have the hands-on experience to manage and lead Yahoo! during the approximately one year period estimated to be required to gain regulatory approval for a deal or to manage and lead the remainder of the Company (non-search) after a transaction is completed. Don’t take our word for that. Mr. Icahn will be calling the shots if his slate wins and yet Mr. Icahn himself told the Wall Street Journal last fall: “Technology hasn’t really been one of the things I’ve focused on too much before” and “It’s hard to understand these technology companies.” That’s why you need a knowledgeable, experienced and independent board to represent your interests vis-a-vis Microsoft.”

and finally:

“Carl Icahn bought his stock two months ago for an estimated average cost of less than $25 per share. He is well-known as a corporate agitator with a short-term approach to his investments. His short-term approach gives Mr. Icahn a strong incentive to strike any deal with Microsoft that enables him to recover his investment and get back his money quickly, even a deal that does not provide full and fair value to you. Is that in the interests of all stockholders? Clearly, it is not.”

The letter urges shareholders to vote using the white proxy card in favour of the current board of directors.

I expect Icahn to hit the roof when he sees this (and likely fire off a response). Whether this has any effect on shareholders is another matter.

In an attempt to spin things in a way that favors them present its side of the story, Yahoo has sent out an FAQ on its controversial severance plan to its employees. If you recall, Carl Icahn has accused Yahoo of creating the plan to make the company unattractive to buyers by acting as a $2.4 Billion “poison pill” if there was a change in control at the company. Yahoo disputes that in the FAQ:

“Mr. Icahn says this Plan costs $2.4 billion. Is that what it actually costs?

No. An estimate of the amount, if any, payable under the Plan requires making assumptions about unknown facts and variables including: (1) the number of employees who terminate employment without Cause or for Good Reason within the two years following any Change in Control, (2) each such employee’s job level and base salary, (3) the number of equity awards held by each such employee on their respective severance date, the portion of those awards that are not otherwise vested on that date, and the applicable exercise price of any option awards, (4) the market price of the Company’s common stock at the time such awards are ultimately exercised or paid, and (5) the length and level of reimbursement for health care benefits and outplacement services utilized by each such employee.

Mr. Icahn quotes the $2.4 billion estimate, taken out of context, from a complaint filed in litigation against the company. This number is necessarily based on a number of assumptions, including the assumption that all of Yahoo!’s employees are terminated without Cause or leave for Good Reason following a Change in Control. No one believes that such an assumption is reasonable. For the record, the same preliminary analysis referenced in the lawsuit and relied on by Mr. Icahn and using the same assumptions (including a $35 per share stock price) as those underlying the $2.4 billion figure showed that the total payout would be $845 million or $514 million, assuming that 30% or 15% of the employees, respectively, are terminated without Cause or leave for Good Reason following a Change in Control.”

They also toss this in as well:

“If Yahoo! remains an independent company and no Change in Control occurs, what happens to the Plan?

The Plan stays in effect until the Yahoo! Board of Directors modifies or terminates the Plan.”

I think that translates to “if we win the proxy fight, the severance plan will be canceled.” Of course, that assumes that angry shareholders don’t have it canceled first.

Expect Icahn to fire back at Yahoo at any time.