Monday, June 16, 2008

Computerworld: Yahoo investor urges shareholders to pick Door No. 3

Jackson advocates compromise on Yahoo board by picking four candidates from Icahn slate

By Linda Rosencrance

June 16, 2008 (Computerworld) A Yahoo Inc. investor is urging fellow shareholders to vote for a board of directors that would combine some of the company's current directors with some of the nominees on the slate offered by billionaire investor and Yahoo shareholder Carl Icahn.

In a column today on The, Jackson, president of Ironfire Capital LLC in Naples, Fla., offered his opinion on the merits of a combined board. Jackson had mulled his own proxy fight but changed his mind because of the expense involved.

Jackson said he agrees with Icahn's reasons for trying to take over Yahoo's board at the company's annual shareholder meeting Aug. 1. Icahn decided to launch a proxy fight after Yahoo turned down Microsoft Corp.'s acquisition bid. Icahn is also angry about an employee severance package Yahoo put into place that he says was intended to stop Microsoft from taking over the company.

Yahoo's board told Icahn to stay out of the process because he misunderstood Microsoft's takeover proposal, and it said that the board was better qualified to maximize shareholder value.

While Jackson noted that he rejects Yahoo's line of reasoning, he said some large institutional shareholders will be persuaded more by Yahoo's argument than by Icahn's and will therefore side with Yahoo.

So while Icahn wants to remove the entire board at the shareholders meeting, Jackson is advocating a middle ground and said he has pulled together a number of Yahoo shareholders who collectively own 3.2 million shares (worth $74 million today) of the company.

"Here is a third option for how institutions can vote at Yahoo's annual meeting, if you cannot fully support the Icahn slate: Vote in a minority of Icahn's representatives to Yahoo's board," Jackson said in the column. "There are nine spots up for election on this year's Yahoo board. My third option would be to vote in five from the existing board and four nominees from Icahn's slate. Whichever nine individuals gets the most number of votes will serve on the new board."

Yahoo could not be reached for comment.

Jackson said his plan would create a new board while sending a message to the directors who stay on that they are expected to be "more responsive and shareholder friendly."

"Neither side running for election can guarantee that Microsoft will ever come back to the table with an offer for Yahoo," he said. "We must accept that reality and select a board to do the best job in the current situation (even as distasteful as the situation is). This third option will clearly assure the best possible future outcome for shareholders vs. supporting only the incumbent Yahoo board."

The current directors Jackson endorsed are Vyomesh Joshi, executive vice president of Hewlett-Packard Co.; Robert Kotick, chairman and CEO of Activision; Maggie Wilderotter, chairwoman and CEO of Citizens Communications; Gary Wilson, a private investor; and Jerry Yang, CEO and co-founder of Yahoo.

Icahn, however, in several scathing public letters to Yahoo's board, has publicly stated that Yang has to go.

Jackson also urged investors to vote for these members of Icahn's slate: Adam Dell, younger brother of Michael Dell and a Web venture capitalist; Lucian Bebchuk, a professor and director of Harvard Law School's program on corporate governance; John Chapple, the former CEO of Nextel Partners; and Edward Meyer, former CEO of Grey Global Group, an advertising agency.

"In my opinion, the current members of Yahoo's compensation committee, Chairman Roy Bostock, Ron Burkle and Art Kern, should not be re-elected, as they were each the subject of the highest 'against' votes at last year's meeting," Jackson said. "They are also responsible for lading out excessive stock options to their fellow directors and senior executives over the last four years."

Jackson said that in order for Yahoo shareholders to move forward, they need to opt for his plan.
"Most Yahoo shareholders I've communicated with since the breakdown in discussions between Microsoft and Yahoo last week are still numb and angry," he said. "From Feb. 1 to May 3, Yahoo shares were valued at $31 (and briefly verbally valued at $33), before the bottom fell out of the talks. Today, those shares are at $23, with no prospect of increased value in the foreseeable future. Yahoo appears comfortable with its new deal to partially use the market monopolistic leader for paid search ads. Microsoft, and its 61% premium offer, appears to be gone, for now. Hence the need for this third option."

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