All Things Digital

The best thing that can be said of the week ending Oct. 10, 2008, is this: It’s over.

Marked by panic selling and wet-your-pants fear, it was one of the worst weeks in the financial world’s history–a week that cut the legs out from under Google (GOOG), beat Yahoo until its market cap bled purple and caused the Dow Jones Industrial Average to swing more than one thousand points on an intra-day basis.

It was a week that saw Sequoia Capital warn its portfolio companies to prepare for a protracted downturn or, in the words of partner Michael Moritz, be “spattered on windshields and radiator grills and be forgotten.” Turns out Bubble 2.0 sounds a lot like Bubble 1.0 when it pops.

Beneath the screams of agony echoing across Wall Street, there was other news worth noting:

• Advanced Micro Devices (AMD) announced plans to spin off its manufacturing operations.
• “Legal” turned out to be a poor choice of adjectives for RealNetworks’ RealDVD (RNWK), the company’s new “legal” DVD ripper. A judge extended the temporary restraining order barring the company from distributing it.
• This just in: Time Warner’s (TWX) AOL and Yahoo (YHOO) are still talking about a merger and Generalissimo Francisco Franco is still dead.
  Where is Microsoft (MSFT) in all this? Sitting on the sidelines hoping the deal will go through.
• Finally, activist investor Eric Jackson, the creator of the Yahoo! Plan B investor community, revealed Yahoo! Plan C: his hedge fund’s divestiture of its Yahoo stake.

No surprise here. Yahoo shareholder dissatisfaction is following a trend line inverse to the company’s plummeting share price. In fact, the price has dipped so low that Ironfire Capital founder Eric Jackson–the Yahoo shareholder activist who agitated for change at the company and the creator of the Yahoo! Plan B investor community–has dumped his Yahoo shares.

“I sold my YHOO stake, which I held through my hedge fund last month when it hit $20,” Jackson told Digital Daily. “I still own a small amount personally. I had no idea idea it would fall this much but I finally decided to stop pushing a rope by calling for change from the inside [as a shareholder]. I voted with my feet. This board has the blood of its shareholders on its hands, and I hope they wear that scarlet letter stigma for a long time.”

Asked to comment on Mithras Capital Partners proposal that Yahoo (YHOO) sell itself to Microsoft (MSFT) for $22 a share, Jackson had this to say: “If I was in Redmond, I’d say why not wait a few weeks and pick this company up for a couple of bucks?”  

After enjoying a few brief months of hostile-bid-inspired investor enthusiasm, Yahoo’s share price has resumed the steady decline it’s been charting for some time now.Yahoo closed at $18.75 today. Not only is that the stock’s lowest level in five years, it’s well below the $19.18 it was worth on Jan. 31, the day before Microsoft (MSFT) announced its $31-per-share offer for the company. Funny now to think that Yahoo’s (YHOO) directors argued that that figure “massively undervalued” the company. Funnier still to think that at points during discussions, the Web’s perennial underachiever believed itself to be worth $40 a share.

Carl Icahn has finally broken his silence. The outspoken billionaire investor, who’s been oddly quiet since Yahoo (YHOO) announced its advertising partnership with Google (GOOG), finally commented on the deal this morning, saying it “might have some merit.”

In a brief interview with Reuters, Icahn seemed oddly reserved for someone who, up until last week, had always been ready with an unkind word and an outstretched middle finger for Yahoo and its fumbling leadership. Apparently, holding 59 million shares in a company that’s somehow managed to undermine a merger deal with Microsoft (MSFT) that would have valued it at up to $47.5 billion has taken some of the spring out of his step. “While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit,” Icahn said. “I continue to be extremely disappointed with the Yahoo management, but the Google deal might have some merit and seems to be better than the alternative deal proposed by Microsoft.”

Icahn offered no comment on the future of his proxy fight for the company’s board, though one would imagine he must be having some second thoughts about it now that Microsoft has thrown up its hands in disgust and has apparently walked away from the negotiating table for good. And the “change of control” provisions that allow Google or Yahoo to terminate the partnership they’ve just inked in the event that a majority of Yahoo’s board is replaced at its upcoming annual shareholders meeting in August can’t be sitting well with him either.

But not to worry, dissident Yahoo investor Eric Jackson has a plan that may right the company and prevent its current proprietors from driving down its value once again. He’s urging fellow shareholders to vote for a board slate that includes four directors proposed by fellow activist Carl Icahn and five from Yahoo. “I want Icahn to win outright, but I am putting forward this ‘third option’ because I fear several large investors will worry about the operational abilities of Icahn and his team,” Jackson wrote in an essay entitled “Third Option for Yahoo.”

So who would Jackson like to see elected to Yahoo’s board? From Icahn’s slate he recommends Adam Dell, Lucian Bebchuk, John Chapple and Edward Meyer. And from Yahoo’s existing board Vyomesh Joshi, Robert Kotick, Maggie Wilderotter, Gary Wilson and Jerry Yang.

Jerry Yang? Really?

“Although I have been disappointed with the results of Jerry Yang’s tenure as CEO and hold him accountable for the poor outcome with Microsoft, I believe that–as a co-founder–he should remain on this board,” Jackson explained. “Whether or not he remains as CEO is something for the new board to determine. I frankly hold Mr. Bostock [Yahoo Chairman Roy Bostock] more responsible for the breakdown in talks with Microsoft. He supposedly has much more experience in such deal-making matters than Yang, and I find it puzzling that he would choose not to attend that fateful May 3 meeting in Seattle, which led to Microsoft finally pulling the plug on their offer.”