Monday, June 16, 2008

MarketWatch: Dissident Yahoo shareholders tone down attacks

Icahn says Google deal 'might have some merit' with Microsoft talks over

By Benjamin Pimentel, MarketWatch
Last update: 10:43 a.m. EDT June 16, 2008

SAN FRANCISCO (MarketWatch) - With Microsoft Corp. balking at an all-our merger, Yahoo Inc.'s dissident shareholders appear to be toning down the rhetoric in the proxy campaign meant to bring the tech giant back to the negotiating table.

On Sunday, billionaire investor Carl Icahn, who is leading the campaign to boot out the Yahoo board, told Reuters that he was studying the Internet company's search outsourcing deal with Google Inc., saying the partnership "might have some merit."

Yahoo unveiled the deal last week shortly after announcing that Microsoft was no longer interested in buying the beleaguered Web portal. Under the agreement, Yahoo will outsource some of its Web search activities to Google in exchange for cash; the company says the deal could eventually generate $800 million in annual revenue. See full story.

"While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit," Icahn told Reuters.

Icahn kicked off a proxy campaign against Yahoo last month after Microsoft pulled its $47 billion buyout offer after failing to come to agreement with Yahoo over the price. His publicly stated goals have been to revive merger talks with Microsoft and to remove Yahoo co-founder Jerry Yang from the CEO slot.

Shares of Yahoo have fallen more than 11% since the company announced last week that it has concluded talks with Microsoft over a potential merger or any sort of alternative agreement.

Also on Monday, shareholder Eric Jackson, who is leading his own movement of disgruntled investors, urged other holders to vote for a short slate composed of nominees from Icahn's team and the current board.

Jackson's proposed slate included five current directors, such as CEO Jerry Yang and Robert Kotick, CEO of Activision, and four of Icahn's nominees, including John Chapple, former Nextel Partners CEO and venture capitalist Adam Dell, brother of Dell Inc. CEO Michael Dell.

"Neither side running for election can guarantee that Microsoft will ever come back to the table with an offer for Yahoo," Jackson said in an opinion piece published in "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."

Jackson he wanted Icahn "to win outright" but he did not endorse him saying, "I am putting forward this 'Third Option' because I fear several large shareholders will worry about the operational abilities of Icahn and his team. As I said earlier, I support them and believe they are more than fit to serve on this board. Icahn has done a great service to Yahoo shareholders by running this proxy contest."

He added that many Yahoo shareholders "are still numb and angry" after the breakdown of merger talks between Yahoo and Microsoft.

Benjamin Pimentel is a MarketWatch reporter based in San Francisco.

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