All Things Digital

Have you heard? Carl Icahn is unhappy with Yahoo’s current leadership and the manner in which it handled Microsoft’s unsolicited acquisition offer. In a stink-bomb of a letter to Roy Bostock, the chairman of Yahoo’s board of directors, Icahn accused Yahoo (YHOO) of acting against its shareholders’ best interests by making it practically impossible for Microsoft (MSFT) to stay at the bargaining table.

“Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies,” Icahn wrote, referring to Yahoo’s highly unusual severance plan that would have rewarded employees who left the company after a change in ownership. “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.”

Doomsday machines? James Bond movies? Did Yahoo appoint Richard Kiel to its board and not tell anyone?

Oh, and by the way, the name’s Icahn … Carl Icahn.

His letter follows.

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Turns out Jerry Yang isn’t the only Yahoo CEO to reject a buyout offer from Microsoft. His predecessor Terry Semel did as well. According to a complaint unsealed as part of a proposed class-action suit against Yahoo’s directors today, Microsoft (MSFT) offered $40 a share for Yahoo (YHOO) in January 2007. And the company refused it, just as it would later refuse the $33-per-share bid that followed a year later.

But that’s just a sidenote to the larger issues in the suit, which charges Yahoo’s directors with breach of fiduciary duty for not just rejecting Microsoft’s proposed deal, but also for going to great lengths to make it an unappealing acquisition target. “Due to their personal interests in maintaining Yahoo’s independence and their strong antipathy to Microsoft, [Yahoo co-founders Jerry Yang and David Filo] failed to consider and respond in good faith to the acquisition offers by Microsoft to the detriment of Yahoo and its shareholders,” the complaint argues. The two “used the threat of pursuing measures that make Yahoo an unattractive acquisition target, including the prospect of Yahoo abandoning its long-term business strategy in favor of a tie-up with Google that would make a Microsoft acquisition a regulatory and litigation quagmire, as an improper means to thwart Microsoft’s advances.” Moreover, “Yang convinced the board to adopt change-in-control employee severance plans that impose tremendous costs and risk for an acquirer, throwing sand in the gears of Microsoft’s plans for a smooth integration. These highly unusual plans reward employees with rich benefits if they quit and claim a constructive termination in the aftermath of a change in control.”

The plans at issue here, which would have cost Yahoo $1.5 billion, provided 100% equity acceleration for all employees. It is “a bizarre outcome if people who stick around make off worse financially than people who are laid off,” one Yahoo VP said of the plan. The company’s compensation consultant had a better word for it: “nuts.”

What was it Yang said during his interview at D6 last week? “I will probably never be a CEO again?”

Hey, he said it, not I.

The only difference between Yahoo (YHOO) CEO Jerry Yang’s latest all-hands memo and the last one he broadcast is that “Carl Icahn” has been substituted for “Microsoft” (MSFT). Other than that, it’s another tired restatement of the capitalization-free “try not to get too preoccupied with the ongoing assault on our company” missives that Yang has issued at least twice before.

Anyway, here it is in all its keep-your-head- in-the-sand glory.

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