Posted by: Rob Hof on July 18, 2008
With its annual meeting looming in just two weeks, Yahoo is ratcheting up its defense against Carl Icahn’s proxy fight with an energy critics wish they’d seen for the past few years of Yahoo’s gradual decline. The fight for control of Yahoo always looked like a close call amid all the shareholder anger directed at Yahoo’s board and cofounder and CEO Jerry Yang as they rejected one Microsoft overture after another. But as I wrote last week, momentum has turned Yahoo’s way. Now, amazingly, it looks like Yahoo could actually win this thing.
Today, Yahoo got at least one high-profile backer, one who may be enough to turn the tide: Bill Miller, chairman and chief investment officer of Legg Mason Capital Management, Yahoo’s second-largest shareholder. Miller released a statement today in support of Yahoo’s current board. It reads in part:
We have met with representatives of the current Board and management, including founder Jerry Yang, several times. We believe the current Board acted with care and diligence when evaluating Microsoft’s offers. We believe the Board is independent and focused on value creation for long-term shareholders.
In general, we believe it is appropriate for large shareholders to have representation on corporate boards if they so desire. Mr. Icahn’s slate includes people experienced in technology, advertising, capital markets and governance. We would prefer that the company and Mr. Icahn reach a mutual agreement on the composition of the Board and end this disruptive proxy contest.
Mr. Icahn has said that Steve Ballmer has made it clear to Mr. Icahn that Microsoft cannot negotiate a transaction with the current Board of Yahoo! but would negotiate with a new Board led by Mr. Icahn. While boards are there to protect shareholder interests, shareholders own the company. If Microsoft wants to acquire Yahoo!, it can make the terms and conditions of its offer public. If Yahoo! shareholders support it, I am confident the Board of Yahoo! will accept it.
Carl Icahn bought his stock two months ago for an estimated average cost of less than $25 per share. 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 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.
And the letter doesn’t let Microsoft off the hook either:
This “odd couple” collaboration – between two parties with keenly different agendas – is indeed perplexing. Why does Mr. Icahn believe he can count on Microsoft to complete a transaction? Certainly Microsoft is a well-respected and successful company and we have been clear that we are fully prepared to do a deal with them. But 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! either because:
* Microsoft can’t decide what is and isn’t strategically important to its online business; or
* 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.
Not least, Yahoo is taking its campaign right to its own hugely trafficked home page with “a message from Yahoo” button where people can click through to more information on the proxy fight—though Henry Blodget at Silicon Alley Insider isn’t so sure this is a shareholder-friendly use of Yahoo’s prime real estate.
Still, Yahoo is a long way from home-free. Next Tuesday, it will report second-quarter earnings that, even if Yahoo weren’t already grappling with tough competitors like Google and the departure of key executives, would be challenging thanks to the poor economy. Even Google missed its second-quarter, though apparently not because of the economy, but ValueClick, Bankrate, and Looksmart have all issued warnings. And they depend on the same display ads that make up most of Yahoo’s revenues.
What’s more, next Wednesday, ISS, the proxy advisory service owned by RiskMetrics, is expected to issue its advice to shareholders on the board vote. Few people expect ISS to recommend Icahn’s slate in its entirety, but there’s no guarantee it will recommend all of Yahoo’s current board. And its opinion carries a lot of weight with institutional shareholders.
All this could prove to be noise. All the parties no doubt would prefer to get a deal done to letting the press have a field day at the Aug. 1 annual meeting. As I wrote earlier this week, there’s a lot more dealmaking to come.