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Yahoo Settles Proxy Fight With Icahn; What's Next?


After months of battle with activist shareholder Carl Icahn, Yahoo has finally settled the proxy battle that had roiled the company for months. (Full text of the release and the SEC filing after the jump.)

Under an agreement announced early this morning, Icahn agreed to back Yahoo?? current board (minus director and Activision Blizzard CEO Robert Kotick, who will not run for reelection now). In addition, Icahn, who owns a bit under 5% of Yahoo shares, will join Yahoo?? board and two additional Yahoo directors will be chosen from his original slate plus Jonathan Miller, former chairman and CEO of Time Warner?? AOL unit and now a partner in the tech investment firm Velocity Interactive Group. Not least, Yahoo cofounder and CEO Jerry Yang, under fire by shareholders and Icahn for not accepting Microsoft?? various offers to buy the whole company or its search operations, keeps his job??t least for now.

The end of the increasingly histrionic proxy battle removes one big uncertainty from Yahoo, though certainly not all the uncertainties. In recent days, it had appeared that Yahoo was getting the upper hand in the battle, but it appears the company did not want to take any chances. One dissident shareholder had just suggested voting for a minority slate, but that plan now has been superseded. Corporate governance adviser RiskMetrics, whose ISS unit is expected to make a recommendation this week on how shareholders should vote on Yahoo?? board, said this morning that it had expected an agreement like this after prominent Yahoo investor Bill Miller of Legg Mason last week supported Yahoo?? board, but added a statement that read: ??n general, we believe it is appropriate for large shareholders to have representation on corporate boards if they so desire.?/p>

So what now? Investors, who are selling off Yahoo’s stock, down about 3% in early trading today, clearly believe that a Microsoft deal they have continued to hope for is now less likely. One analyst, Jeffrey Lindsay of Sanford C. Bernstein, notes that in previous situations where companies agreed to seat Icahn or his cohorts, the status quo was maintained. However, Stifel Nicolaus analyst, in a report this morning, says the settlement opens the door to new negotiations with Microsoft.

The reality? According to one person close to the situation, the agreement doesn’t change much in terms of the prospect for a Microsoft deal. For one thing, even though two of the new board members will be chosen from Icahn’s slate, they will be Yahoo’s—not Icahn’s—choice. What’s more, Jonathan Miller, who was not on Icahn’s slate, was Yang’s suggestion. And I’m told he is a lock for a board seat (and, who knows, maybe more at some point—not to be cute, perhaps CEO if Yang can’t make progress pretty soon on his own). Essentially, Icahn gets two seats—himself and one other person, hand-picked by Yahoo.

So in essence, Yahoo’s board won’t change much. And that means Yahoo’s negotiating stance won’t change much. According to one source, Yahoo remains open to a Microsoft deal. But with no talks currently on, it will be up to Microsoft to make a move. And it seems unlikely the software giant, which can’t seem to figure out exactly what it wants from Yahoo, will do that until things settle down after Yahoo’s Aug. 1 board meeting.

At that point, Icahn no doubt will be lobbying for the Microsoft deal he has continued to push for. “While I continue to believe that the sale of the whole company or the sale of its search business in the right transaction must be given full consideration, I share the view that Yahoo’s valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders,” Icahn said in the statement.

That said, failing a Microsoft deal, Icahn could push for actions that might boost the stock price, such as selling off Yahoo’s Asian Internet properties or laying off more people. Analysts speculate that Yahoo could announce an Asian asset sale as early as tomorrow, when Yahoo reports its second-quarter earnings. Even though Icahn will have only a small representation on Yahoo’s board, he is a formidable force who no doubt will lobby for change at Yahoo.

If the Icahn agreement today doesn’t change the composition of the board much, neither is there any change in Yahoo’s and Microsoft’s basic situation. Yahoo is still struggling to regain momentum lost to Google. And Microsoft still needs Yahoo—more than any other asset in the known universe—if it is to have any chance in the near term of competing with Google.

The Icahn agreement may well mean the pressure for a deal is off until after Yahoo’s annual meeting. But in all likelihood, that long and winding saga is not over yet.

Here's the SEC filing (interestingly, if Icahn sells off enough shares, his nominee must leave the board; and he can't talk trash about Yahoo, its board, or its executives):

Item 1.01. Entry into a Material Definitive Agreement.

On July 21, 2008, Yahoo Inc. (the “Company”) and Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II L.P., Icahn Partners Master Fund III L.P., High River Limited Partnership and Carl C. Icahn (collectively, the “Icahn Group”) entered into an agreement (the “Settlement Agreement”) to settle the proxy contest pertaining to the election of directors to the Company’s Board of Directors (the “Board”) at the Company’s 2008 annual meeting of stockholders (the “Annual Meeting”).

Pursuant to the Settlement Agreement, among other things:

• The Company has agreed that, as soon as practicable following the date of the Annual Meeting:

• but no later one business day following the completion of the Annual Meeting, the Board will (i) increase the number of seats on its Board from 9 to 11 and (ii) take all necessary action to appoint Carl Icahn (the “Icahn Associates Nominee”) to serve as a director of the Company until no earlier than the 2009 annual meeting of stockholders (the “2009 Annual Meeting”), subject to the terms of the Settlement Agreement; and

• but no later than the later of August 15, 2008 and one business day following completion of the Annual Meeting, the Board will appoint two individuals to serve as directors of the Company until no earlier than the 2009 Annual Meeting, subject to the terms of the Settlement Agreement, which individuals will be selected at the Board’s sole discretion, upon the recommendation of the Company’s Nominating and Corporate Governance Committee, from the following list: Lucian A. Bebchuk, Frank J. Biondi, Jr., John H. Chapple, Mark Cuban, Adam Dell, Keith Meister, Edward H. Meyer, and Brian S. Posner, each of whom was on the Icahn Group’s slate of director nominees, and Jonathan Miller.

• The Icahn Group have irrevocably withdrawn their notice to the Company of their intention to nominate certain individuals at the Annual Meeting and have agreed to immediately cease all efforts related to their own proxy solicitation.

• Each member of the Icahn Group will cause or instruct the record owner to cause all shares of the Company’s common stock beneficially owned by them to be present and voted for all of the directors nominated by the Board for election at the Annual Meeting.

• In the event the Icahn Group and their affiliates own less than 30 million shares of the Company’s common stock, the Icahn Associates Nominee will tender his resignation from the Board.

• So long as the Icahn Associates Nominee is a member of the Board, no member of the Icahn Group nor any affiliate of the Icahn Group will:

• solicit proxies or written consents of stockholders, or any other person with the right to vote or power to give or withhold consent in respect of the voting securities of the Company, or conduct, encourage, participate or engage in any “solicitation” of any proxy, consent or other authority to vote any voting securities, with respect to any matter, or become a participant in any contested solicitation with respect to the Company, including without limitation relating to the removal or the election of directors;

• form or join in a partnership, limited partnership, syndicate or other group, including without limitation a group as defined under Section 13(d) of the Securities Exchange Act of 1934, with respect to the Company’s common stock;

• without the prior approval of the Board contained in a written resolution of the Board, take certain actions with respect to any (i) tender offer or exchange offer, merger, acquisition or other business combination involving the Company or any of its subsidiaries or affiliates; (ii) any form of business combination or acquisition or other transaction relating to a material amount of assets or securities of the Company or any of its subsidiaries or affiliates; or (iii) any form of restructuring, recapitalization or similar transaction with respect to the Company or any of its subsidiaries or affiliates; and

• make, or cause to be made, any statement or announcement that relates to and constitutes an ad hominem attack on, or relates to and otherwise disparages, the Company, its officers or its directors or any person who has served as an officer or director of the Company on or following the date of the Settlement Agreement.

• If, prior to the 2009 Annual Meeting, the Board forms a committee to evaluate, negotiate or approve an extraordinary transaction, involving a possible change in control of the Company, the sale of all or substantially all or a material portion of the assets of the Company or a sale of all or substantially all of the Company’s search assets, or any other material transaction out of the ordinary course of business, the Board will offer to appoint the Icahn Associates Nominee to serve on any such committee.

• The Icahn Group and the Company agreed to a mutual release of claims arising in respect of, or in connection with, the nomination and election of directors at the Annual Meeting.

A copy of the Settlement Agreement is filed with this Form 8-K and attached hereto as Exhibit 10.1. The foregoing description of the Settlement Agreement is qualified in its entirety by reference to the full text of the Settlement Agreement. On July 21, 2008, the Company issued a press release announcing the signing of the Settlement Agreement. A copy of the press release is filed with this Form 8-K and attached hereto as Exhibit 99.1.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(b) On July 20, 2008, Mr. Robert A. Kotick notified the Company that he will not to stand for re-election to the Board at the Annual Meeting and tendered his resignation from the Board, effective as of the conclusion of the Annual Meeting. Mr. Kotick has served as a member of the Board since March 2003.

And here's the release:

Yahoo! Announces Settlement with Carl Icahn

SUNNYVALE, Calif., Jul 21, 2008 (BUSINESS WIRE) -- Yahoo! Inc. (Nasdaq:YHOO), a leading global Internet company, announced today that it has reached an agreement with Carl Icahn to settle their pending proxy contest related to the Company's 2008 annual meeting of stockholders.

Under the terms of the settlement agreement, eight members of Yahoo!'s current Board of Directors will stand for re-election at the 2008 annual meeting: Roy Bostock, Ronald Burkle, Eric Hippeau, Vyomesh Joshi, Arthur Kern, Mary Agnes Wilderotter, Gary Wilson and Jerry Yang. In view of the settlement agreement with Mr. Icahn, and the termination of the proxy contest, Robert Kotick has decided not to stand for re-election to the Board at the 2008 annual meeting.

Following the 2008 annual meeting, the Yahoo! Board will be expanded to 11 members. Carl Icahn will be appointed to the Board and the remaining two seats will be filled by the Board upon the recommendation of the Board's Nominating and Governance Committee from a list of nine candidates recommended by Mr. Icahn, which includes the eight remaining members of the Icahn slate of nominees and Jonathan Miller, currently a partner in Velocity Interactive Group and former Chairman and CEO of AOL.

As part of the settlement agreement, Mr. Icahn, who owns an aggregate of 68,786,320 shares, or 4.98% of Yahoo! common stock, has agreed to withdraw his nominees for consideration at the annual meeting and to vote his Yahoo! shares in support of the Board's nominees.

"We are gratified to have reached this agreement, which serves the best interests of all Yahoo! stockholders," said Yahoo! Chairman Roy Bostock. "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."

"This agreement will not only allow Yahoo! to put the distraction of the proxy contest behind us, it will allow the Company to continue pursuing its strategy of being the starting point for Internet users and a must buy for advertisers," said Yahoo! Co-founder and Chief Executive Officer Jerry Yang. "No other company in the Internet space has our unique combination of global brand, talented employees, innovative technologies and exceptional assets, attributes that will help us take advantage of the large and growing opportunity ahead of us. I look forward to working together with our new colleagues on the Board to make that happen."

Mr. Icahn said, "I am very pleased that this settlement will allow me to work in partnership with Yahoo!'s Board and management team to help the Company achieve its full potential. While I continue to believe that the sale of the whole Company or the sale of its Search business in the right transaction must be given full consideration, I share the view that Yahoo!'s valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders. I believe this is a good outcome and that we will have a strong working relationship going forward. Additionally, I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made."

In response to Mr. Kotick's decision to step down from the Board, Mr. Bostock said, "I would like to personally thank Bobby for his dedicated service to Yahoo! these past 5 years. Bobby has been a valuable resource to our Board and the Company and we are grateful for his contributions. He wanted to help see the Company through this recent chapter, but made it clear to me that once the proxy contest was resolved, he was eager to focus his efforts on his work as CEO of the newly merged Activision Blizzard and his other business and civic pursuits."

The Company intends to file the full text of the settlement agreement later today with the Securities and Exchange Commission, and will also file and mail to its stockholders, supplemental proxy material.


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