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Bolstered by Major Shareholder's Support, Yahoo Comes Out Swinging

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.

Yahoo is also turning up the heat on Icahn, in particular, with a series of statements and borderline nasty letters to shareholders and to its own employees. From the last one:

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.

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Reader Comments

Sugiato Setiabudi

July 19, 2008 12:55 AM

Yahoo's Institution Shareholders should do "Socially Responsible Investment" to deter any illegal hostile take over by unlegitimate bodies or persons.

Carl Icahn and Steve Ballmer should be held personally liable in abusing securites market and in disregarding corporate governance systems.

Yahoo's shareholders should do reject "illegal hostile take over".and also reject their "ill motive"


July 19, 2008 12:59 AM

I told everyone from day 1 that Icahn was bad news. Leave Yahoo alone, it will prosper so stop giving it bad publicity


July 19, 2008 01:34 AM

Obviously, Bill Miller just wants a difficult fight and a well-rounded board so his actual suggestion, as he stated, is both sides compromise, which helps reach a better deal with Microsoft. The bottom line is neither side should overwhelm.

Common Name

July 19, 2008 08:51 AM

On seeing Icahn's Blockbuster acquisition and the resulting 80 percent stock price decline, I certainly won't vote for him.

Michael White

July 19, 2008 08:41 PM

Whatever Carl Icahn paid, was higher than Yahoo's stock price, prior to the Microsoft interest.

I must be missing something if Yahoo believes that Microsoft is trying to destabilize it rather than compete with Google.


July 20, 2008 01:01 AM

Yahoo's unusually open and terse comments should indicate to anybody paying attention that Microsoft and the greedy Carl Icahn are up to no good.

I applaud Yahoo's resistance to the Microsoft/Icahn strong arm tactics and their desire to remain free from the influence of short term investors like Icahn and his ilk.

Why anybody wants to go up against Google right now is lost on me. They may maintain their extraordinary position for a number of years more before they make a miscalculation or a misstep allowing competitors to gain a foothold. Until then, trying to gain ground on Google is a fool's game and a huge money trap.

Wait for Google to blow it and then get into search as a revenue stream. Trying to buy your way into search will only make you poor and your shareholders mad.

Patience will be the smartest card to play in this game.

Nadir Muthu

July 20, 2008 05:37 AM

Yahoo! is one of my most admired companies in the world. It has to stay independant and not be part of something like microsoft.

What would happen if search is monopolised by microsoft? It is bad for the search industry as all the user innovations would come to a halt and innovations that make microsoft money would come to play.

Well done google!


July 20, 2008 11:44 AM

Thumbing his nose at individual shareholders, Imperious Jerry courts the top funds for an easy way to keep gorging himself on fat perks, while destroying shareholder value. Is he or his Board granting bug funds 'special' news or private 'incentives' to keep his cabal in power?

PNW Trojan

July 20, 2008 11:47 AM

"We believe the Board is independent and focused on value creation for long-term shareholders." Hey Miller, WILL ANY OF US BE ALIVE, WHEN YANG 'CREATES VALUE' in YHOO??

Shane Persaud

July 20, 2008 01:06 PM

If Microsoft really wanted to acquire Yahoo, they would have a long time ago.

*This Microsoft we are talking about here guys; this corporation is only one of the largest in the world.

MSFT is currently uncertain about it long-term goals and future business model.

After all, soon or later, its Window operating system will become less favorable as freeware improves. Not to mention its newest and recent release of Windows (Vista) was a disaster (I couldn't even run a basic video program).

I believe that MSFT wants to exploit YAHOO along with Carl Icahn for its prime business while having no respect for the company or board.
MSFT is a big bad bully in this scenario and no one likes a bully.


July 21, 2008 06:58 AM

Some srction of this are written in very small characters this size is very difficult to read. i hope that the webmaster will take attention to characters size next times when he or she make best articles in line.

In other hand, yahoo stratgy can be good to save high tech market's equilibrium against the microsoft attack. google offer is dangerous too on the yahoo spirit but less dangerous than microsoft.


July 21, 2008 01:57 PM

I agree

Kevin Lamson

September 15, 2008 12:24 AM


Stock-picking guru Bill Miller of Legg Mason support OF Yahoo!'s (YHOO) efforts to stay independent of Microsoft (MSFT) by refusing to accept its offer to buy the portal company for $29.17 a share has lost Legg Mason investors nearly $840 million dollars in the stock dropped to $19.00 per shares. Legg Mason Capital Management, Inc. and Legg Mason Value trust owned 56,575,000 and 18,754,000 shares in Yahoo respectively as of June 2008.

In April of this year in the Wall Street Journal quoted Mr. Miller as saying that "the current value of Microsoft's offer" -- $29.17 per share as of 4 p.m. Nasdaq market trading Tuesday -- "is not something I'm too excited about." Legg Mason owned 7% of Yahoo!'s shares the and still does. Only they are now only worth $19.00 a share and no one seems to be offering more. In this writers opinon Mr. Miller opposition to Microsofts offer and Carl Ichan's later attempt to change the board of Yahoo doesn't seem to be in the best interest of his "Value Trust" investors. But what do I know I'm not an invesmtent "Guru" who is managing billions of dollars of other peoples money.

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BusinessWeek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, Douglas MacMillan, and Spencer Ante dig behind the headlines to analyze what’s really happening throughout the world of technology. One of the first mainstream media tech blogs, Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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