All Things Digital

To trust Mr. Icahn and his board is really a bad choice.”

–Yahoo! CEO Jerry Yang, July 9, 2008

Having so persuasively argued that Carl Icahn is a doddering Luddite with no articulated plan for Yahoo other than the company’s sale to Microsoft, Yahoo has taken the logical next step and appointed the activist shareholder to its board of directors.

This morning Yahoo (YHOO) said it has an reached agreement to settle its proxy battle with Icahn. Under the terms of the agreement, the company will appoint the investor to its board along with two other directors from his dissident slate. In exchange, Icahn, who owns about five percent of Yahoo common shares, will abandon his proxy fight for the company.

In a statement, Yahoo Chairman Roy Bostock welcomed the man he’s spent the past few months belittling. “We are gratified to have reached this agreement, which serves the best interests of all Yahoo! stockholders,” Bostock said. “We look forward to working productively with Carl and the new members of the Board on continuing to improve the Company’s performance and enhancing stockholder value. Yahoo! is a world-class company with an extremely bright future, and collaborating together, I believe we can help the Company achieve its ambitious goals.”

Icahn too said he’s happy with the arrangement, though he’d still like to sell Yahoo to Microsoft (MSFT). And now that he’s claimed a seat on Yahoo’s board perhaps he can. Clearly, he’s not the “current Yahoo management” with which Microsoft has said it’s unwilling to negotiate a full purchase.

Oh, happy day! Another letter from Yahoo Chairman Roy Bostock and CEO Jerry Yang!

Yawn …

With its Aug. 1 shareholder meeting fast approaching, Yahoo’s (YHOO) leadership is doing all it can to rally support for its incumbent board of directors. Hence today’s paean to redundancy, which argues once again, and in mind-numbing detail, why the company believes stockholders should beware the “Icahn-Microsoft agenda.”

“Carl Icahn bought his stock two months ago for an estimated average cost of less than $25 per share,” Bostock and Yang wrote. “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 (MSFT) 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 pair offered an equally caustic opinion of investor Microsoft and its intentions.

“Microsoft’s flip-flops and inconsistencies over the past five months are so stupefying that one can only conclude that Microsoft was never fully committed to acquiring Yahoo,” Bostock and Yang wrote. They argued that “Microsoft is more interested in destabilizing a key competitor so that it can either enhance its competitive position or buy our highly valuable search business–and the enormously desirable intellectual property associated with it–at a bargain-basement price.”

Yahoo, says the pair, would much prefer to “sell the entire Company to Microsoft for $33 per share or more if Microsoft will negotiate a transaction that delivers certainty of value and certainty of closing.”

$33 per share? Isn’t that exactly the offer that was refused by Yahoo in early June?

There’s a great scene in “The Naked Gun: From the Files of Police Squad!” in which Lt. Frank Drebin, the film’s bumbling protagonist, stands before an exploding fireworks factory, proclaiming, “Nothing to see here! Please disperse! Nothing to see here!” to the assembled onlookers.

That scene springs to mind today in light of Yahoo CEO Jerry Yang’s latest “try not to get too distracted by this Microsoft business” message to his employees. Here’s the text of the email, which the company filed today with the Securities and Exchange Commission: Read more »

QOTD

There won’t be a deal. There’s bad personal feelings. In six months, (Microsoft) will walk away.”

– News Corp. Chairman Rupert Murdoch utters the words Jerry Yang’s been longing to hear.

“Facts are ventriloquists’ dummies,” Aldous Huxley once wrote. “Sitting on a wise man’s knee they may be made to utter words of wisdom; elsewhere, they say nothing, or talk nonsense.” Truer words, right? Certainly as far as they apply to Yahoo CEO Jerry Yang, who is back in the press again today making the facts surrounding Microsoft’s (MSFT) pursuit of Yahoo (YHOO) sound a whole lot like the latter. Microsoft, says Yang, wants only to destabilize his company, not buy it. And Microsoft has no real desire for a deal with Yahoo, though investor Carl Icahn and Microsoft CEO Steve Ballmer himself have said the company would discuss one with a new Yahoo board.

Yang finds those claims “baffling.” “To trust Mr. Icahn and his board is really a bad choice,” he told The Wall Street Journal, adding that he’s the man to right the foundering company. “I think that I can bring stability back to Yahoo, and I want to get on with building company,” Yang said. “I think that the destabilizing by Microsoft has become more and more intentional. I am not happy about it.”

And who would be, with Microsoft, Icahn and others calling for your head?

If Microsoft is so intent on acquiring Yahoo, why doesn’t it go ahead and make another offer? That was the gist of Yahoo’s (YHOO) comment on Microsoft’s (MSFT) claim this morning that it’s interested in discussing an acquisition of some or all of Yahoo–but only if the company replaces its CEO and board of directors. In an incredulous reply to investor Carl Icahn’s letter to Yahoo shareholders and Microsoft’s statement on on the letter, the foundering Internet company accused the software giant of teaming up with Icahn to bully Yahoo into accepting a lousy deal.

If Microsoft really wants to buy Yahoo, “we again invite them to make a proposal immediately. And if Mr. Icahn has an actual plan for Yahoo beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it,” Yahoo said in a statement. The company noted as well that “as recently as June, Yahoo!’s independent directors and management approached Steve Ballmer about just such a transaction, only to be told that Microsoft was no longer interested even in the price range which they had previously proposed.”

So what now? Who knows. Piper Jaffray (PJC) analyst Gene Munster figures Icahn, who still plans to run a full board slate, has a decent chance of prevailing at Yahoo’s Aug. 1 meeting. “We had previously suggested that Icahn had a 30% likelihood of gaining control of Yahoo!’s board at the annual meeting,” Munster said in a research note. “Now we believe he has a 50% chance of gaining control.”

So that “record” that “casts doubt on whether Microsoft was ever committed to a whole company acquisition” of Yahoo? Entirely a product of Yahoo’s (YHOO) imagination, apparently. Because in a statement issued this morning, Microsoft (MSFT) said that it is open to discussing a “major transaction” with Yahoo–if the company sacks CEO Jerry Yang and replaces its board of directors at its annual meeting next month.

[W]e have never been able to reach an agreement in a timely way on acceptable terms with the current management and board of directors at Yahoo!. We have concluded that we cannot reach an agreement with them. We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the ‘Search’ function with large financial guarantees or, in the alternative, purchasing the whole company.”

Microsoft’s statement followed, by minutes, the publication of an open letter to Yahoo shareholders from billionaire activist Carl Icahn who is mounting a proxy battle for control of the company urging them to oust Yahoo’s current board of directors and renew merger discussions with Microsoft. Full text of the letter after the jump. Read more »

Much as Yahoo would like to believe otherwise, Microsoft’s not done with the company yet. Just as BoomTown suggested it might, Microsoft (MSFT) has circled back for another run at Yahoo (YHOO) and, if it’s successful, it will seize Yahoo’s search business and sell the rest of the company off for parts. The Wall Street Journal reports that Microsoft has approached Time Warner (TWX) and News Corp. (NWS) (owner of Dow Jones and this site) about joining it in a deal that would effectively lead to to the company’s breakup (see “Murdoch-Blocked?” and “MSFT/YHOO/AOL/ NWS/WTF?“). Seems Steve Ballmer is unwilling to abandon a deal that would more than triple Microsoft’s share of U.S. Web searches.

Yahoo, for its part, is said to be skeptical of a deal that would essentially dismember it, but people close to the company tell the Journal that Yahoo is still open to discussing any proposal from Microsoft. Perhaps even one that would see the software giant acquire Yahoo for $33 to $34 a share. After all, this is exactly the deal Yahoo proposed to Microsoft on May 17–two weeks after the company officially dropped its bid for Yahoo. That’s right, Yahoo CEO Jerry Yang and Co.–after insisting Microsoft’s offer “substantially undervalued” the company, tried to resuscitate a deal after Microsoft CEO Steve Ballmer scrapped the bid. From the Journal:

[On] May 17, two weeks after Microsoft officially dropped its pursuit of Yahoo … Yahoo CEO Jerry Yang, director Ron Burkle and chairman Mr. Bostock met with Microsoft’s Mr. Ballmer. Messrs. Bostock and Burkle told Mr. Ballmer they were prepared to sell Yahoo for $33 to $34 a share, the price range Microsoft had offered before talks broke down, according to people familiar with the meeting. That would have valued the deal at about $47 billion, or $6 billion less than Yahoo’s previous asking price of $37 a share.”

Get this. Yahoo’s merger talks with Microsoft collapsed because the software giant wasn’t fully committed to them. This, presumably according to the same folks at Yahoo (YHOO) who would have us believe the company didn’t learn of Microsoft’s (MSFT) offer of $33 per share until Microsoft CEO Steve Ballmer’s kiss-off letter to Yahoo CEO Jerry Yang.

According to a shareholder presentation the group filed with the SEC, Yahoo believes that “the record casts doubt on whether Microsoft was ever committed to a whole company acquisition.”

The record casts doubt on whether Microsoft was ever committed to a whole-company transaction? Really? Are we all talking about the same record here? Because in the public one that I’ve been looking over, Microsoft sounds pretty damn committed. A few examples:

Microsoft’s consistent belief has been that the combination of Microsoft and Yahoo clearly represents the best way to deliver maximum value to our respective shareholders, as well as create a more efficient and competitive company that would provide greater value and service to our customers.”

–Microsoft CEO Steve Ballmer, Feb. 1, 2008

Ad Age: If Yahoo comes back and says this isn’t enough money, would you borrow money or partner to make it happen?
Mehdi: Without a question, we are very committed to this combination. … We have a whole set of plans and preparations ready to go to make it work. And we’d like to do that in a cooperative way with Yahoo. No question–our commitment is clear with this one.”

–Yusuf Mehdi, Microsoft’s senior vice president of strategic partnerships, Feb. 11, 2008

If we have not concluded an agreement within the next three weeks, we will be compelled to take our case directly to your shareholders, including the initiation of a proxy contest to elect an alternative slate of directors for the Yahoo board.”

–Microsoft CEO Steve Ballmer, April 5, 2008

I am disappointed that Yahoo has not moved toward accepting our offer. I first called you with our offer on Jan. 31 because I believed that a combination of our two companies would have created real value for our respective shareholders and would have provided consumers, publishers and advertisers with greater innovation and choice in the marketplace. Our decision to offer a 62% premium at that time reflected the strength of these convictions.”

–Microsoft CEO Steve Ballmer, May 3, 2008