Sunday, May 18, 2008

NY Post: Search and Destroy


May 18, 2008 -- Concerns are mounting among Yahoo! investors that Carl Icahn's rebel campaign will lead to Microsoft picking up the troubled Web company on the cheap.

Eric Jackson, the dissident hedge-fund manager who represents some three million shareholders of Yahoo!, said he has spoken to several key institutional shareholders who are wary of Icahn's approach.

Icahn, the billionaire activist investor, swooped on $1.5 billion of Yahoo! shares last week and launched a campaign to oust Jerry Yang, Yahoo!'s CEO, and his entire board. The veteran agitator wants Yahoo! and Microsoft to get back to the table and negotiate a merger so that they can tackle Google's dominance of the Internet-advertising market.

Icahn who has gathered the backing of some key Yahoo! investors, but does not enjoy universal support, however. Bill Miller, investment manager at Legg Mason Capital Management, first welcomed Icahn's intervention. Now the star stock picker is worried about Icahn's approach.
Miller sold some 20 million Yahoo! shares in the first quarter of the year, according to a regulatory filing, but with 72 million Yahoo! shares under management at Legg Mason, his opinion still carries a lot of weight.

Jackson, who is in talks with many of Yahoo!'s bigger investors, said: "There is a concern that if Icahn's slate of directors are elected and talks with Microsoft are back on, then Yahoo! will have little to no leverage. I mean, the problem is, why would Microsoft make a full offer when it knows the board wants to do the deal?"

It is understood that Morgan Stanley, another of Yahoo!'s bigger shareholders, shares this view along with many other Wall Street and institutional investors.

Microsoft has not indicated whether it will come back to the table, but sources say Steve Ballmer, the chief executive, will reexamine his $47.5 billion offer should Yahoo!'s leadership change.

Since he launched his campaign to oust the Yahoo! board, Icahn has garnered the support of roughly 35 percent of Yahoo! shareholders, including hedge fund Paulson & Company. Paulson has amassed a stake in the company worth some $1.4 billion, or 3.6 percent, a similar-sized stake to Icahn's.

The rebels still need the support of Yahoo!'s bigger investors if they are going to succeed.

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