All Things Digital

Yahoo’s annual shareholder meeting is just a few hours old, and already Microsoft is having its say about Chairman Roy Bostock’s portrayal of its buyout bid melodrama. In comments to Yahoo (YHOO) shareholders, Bostock said the board never “resisted” Microsoft’s offer and claimed once again that the software giant was never actually fully engaged in negotiations.

And that didn’t go over so well with Microsoft (MSFT). “Yahoo is attempting to rewrite history yet again with statements that are not supported by the facts,” the company said in a terse statement.

And doing a poor job of it too, judging by the company’s stock price. Shares in Yahoo dipped below $20 in after-hours trading.

After the annual meeting, Mr. Icahn will be appointed to our Board. … We’re pleased that both parties were able to work together productively to accomplish this settlement, and we look forward to working with the new Board members and benefiting from their fresh perspective. Yahoo! is now moving forward with one team and one voice, and we’re excited about what the future holds.”

– Yahoo CEO Jerry Yang, July 21, 2008

What a horribly anticlimactic anticlimax. Billionaire backseat driver Carl Icahn has decided not to attend Yahoo’s (YHOO) shareholders meeting Friday. This after months of agitating for the company’s sale to Microsoft (MSFT) and the ouster of its board of directors. “I will not be attending [the annual Yahoo meeting],” Icahn wrote in a post to The Icahn Report. “The proxy fight is over and it will not do shareholders or Yahoo! any good to have the annual meeting turn into a media event for no purpose. … A few days ago, I met with both Jerry Yang and Roy Bostock and I believe both gentlemen genuinely wish that we will be able to work together to enhance value. While we still disagree on many points, I have great hope ‘this will be the beginning of a beautiful friendship.’”

“This will be the beginning of a beautiful friendship.” Really?

Looks like Yahoo is benefiting from Icahn’s “fresh perspective” already.

Just four days to go before Yahoo’s (YHOO) annual shareholders’ meeting this Friday, and already, things are starting to get messy. Capital Research Global Investors, Yahoo’s second-largest shareholder, is considering withholding votes for Chairman Roy Bostock and CEO Jerry Yang in protest over the company’s bungling of Microsoft’s takeover bid. Capital Research Global Investors owns 6.5 percent of Yahoo, according to recent filings, so a disdainful withdrawal of support like this would certainly be humiliating. But it won’t be nearly so destabilizing as it might have been now that Yahoo’s proxy contest with investor Carl Icahn has been resolved.

Differences of opinion are what make the financial markets go round. And it would appear that we have some strong ones among the proxy services advising Yahoo shareholders on how to vote at the upcoming election of Yahoo’s board members. This week Egan-Jones Proxy Services threw its support behind all eight board members up for re-election at Yahoo’s Aug. 1 shareholder meeting, arguing that all are qualified for the job.

Glass Lewis & Co., however, does not share that opinion. In a report issued Wednesday, the proxy advisory firm recommended getting rid of three Yahoo (YHOO) directors: Chairman Roy Bostock and directors Ron Burkle and Arthur Kern. All three sit on the company’s compensation committee, of which Glass Lewis seems to take a very dim view. From the Glass Lewis report:

Nominees BOSTOCK, BURKLE and KERN all served as members of the compensation committee in fiscal year 2007, during which time the Company paid more compensation to its top executives but performed worse than its peers. The members of the compensation committee have the responsibility of reviewing all aspects of the compensation program for the Company’s executive officers. It appears to us that members of this committee have not effectively served shareholders in this regard. Further, we are concerned that the committee approved the adoption of the Change in Control Severance Plans with potential brobdingnagian payouts, potentially discouraging a takeover.

Additionally, Mr. Bostock serves as chairman of the nominating and corporate governance committee. At last year’s annual meeting, Messrs. Bostock, Burkle and Kern each received over a 31 percent vote against their re-election. In our 2007 Proxy Paper, we recommended voting against each of these directors due to the Company’s excessive compensation practices. We believe this raises concerns about whether the nominating and corporate governance committee is fulfilling its duty to shareholders, considering that all three directors remain on the board. Moreover, we find it disconcerting that Messrs. Bostock and Kern continue to serve on the committee charged with overseeing governance issues for the Company.”

It’s worth noting, as well, that Glass Lewis was not without concerns about Carl Icahn. In its report, the advisory service noted:

Carl Icahn, chairman of Icahn Enterprises G.P. and CEO of Icahn Capital LP, currently serves on a total of seven public company boards. His total number of directorships will expand to eight once he is appointed to Yahoo’s board. We believe that the time commitment required by this number of board memberships may preclude Mr. Icahn from fulfilling his responsibilities to this Company’s shareholders. We believe shareholders should monitor Mr. Icahn’s ability to devote sufficient time and attention to the Company.”

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 »

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.”

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.”

Our long national nightmare of unceasing Yahoo-Microsoft headlines is finally over. Shares of Yahoo (YHOO) slipped into the mud this afternoon after the company said it had concluded, “definitively,” whatever spectacularly unrewarding discussions it’s been having with Microsoft (MSFT) without reaching any sort of merger agreement. Redmond, it seems, is no longer willing to pay $33 per share to acquire Yahoo.

Meanwhile, Yahoo and Google (GOOG) moved to complete a search-ad deal.

Dueling statements from Yahoo and Microsoft on the conclusion of their negotiations below. (Carl Icahn’s outraged letter on the whole matter presumably forthcoming…)

Yahoo Announces Microsoft Talks Have Concluded

Yahoo, a leading global Internet company, today announced that discussions with Microsoft regarding a potential transaction–whether for an acquisition of all of Yahoo or a partial acquisition–have concluded. The conclusion of discussions follows numerous meetings and conversations with Microsoft regarding a number of transaction alternatives, including a meeting between Yahoo and Microsoft on June 8 in which Chairman Roy Bostock and other independent board members from Yahoo participated. At that meeting, Microsoft representatives stated unequivocally that Microsoft is not interested in pursuing an acquisition of all of Yahoo, even at the price range it had previously suggested.

With respect to an acquisition of Yahoo’s search business alone that Microsoft had proposed, Yahoo’s board of directors has determined, after careful evaluation, that such a transaction would not be consistent with the company’s view of the converging search and display marketplaces, would leave the company without an independent search business that it views as critical to its strategic future and would not be in the best interests of Yahoo stockholders.

Yahoo remains focused on maximizing value for stockholders by continuing to execute on its strategy of being the ’starting point’ for the most consumers on the Internet and a ‘must buy’ for advertisers. The online-advertising industry is projected to grow from $40 billion in 2007 to approximately $75 billion in 2010, and the company believes it has the right assets, strategic plan, board of directors and management team to capitalize on this growth opportunity.”

Microsoft Issues Statement Regarding Yahoo

In the weeks since Microsoft withdrew its offer to acquire Yahoo, the two companies have continued to discuss an alternative transaction that Microsoft believes would have delivered in excess of $33 per share to the Yahoo shareholders. This partnership would ensure healthy competition in the marketplace, providing greater choice and innovation for advertisers, publishers and consumers.

As stated on May 3 and reiterated on May 18, Microsoft was not interested in rebidding for all of Yahoo. Our alternative transaction remains available for discussion.”

By the time this Yahoo debacle has sorted itself out, Carl Icahn may have done more to revive the long lost art of letter writing than to revive Yahoo (YHOO) itself. In another stink bomb of a letter to Yahoo Chairman Roy Bostock today, the activist investor slagged the company’s leadership with particular vitriol. “In your press release from Friday, you stated again that I do not have a credible plan for Yahoo,” Icahn wrote. “Did you even bother to read my letter, which went into great detail on what measures I would ask the new board to take? Ironically, while you keep inquiring about my plans, it is interesting to note that Yahoo’s board has been busy reaping great compensation benefits. Indeed, you made approximately $10,000 per week last year–not bad for a board member. I believe most of your shareholders would be interested in seeing your time sheets–especially in light of the fact that, in my estimation, most of your so-called ‘plans’ over the last few years have been failures. Remember the old adage–those who live in glass houses should not throw stones.”

Roy, I think you’ve got another letter to write. Icahn’s missive in full follows.
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