SF Chronicle: Yahoo on hot seat despite truce with Icahn
Verne Kopytoff, Chronicle Staff Writer
Thursday, July 31, 2008
(07-30) 20:31 PDT -- Yahoo Inc.'s annual shareholder meeting was on course to be a dramatic showdown with investor activist Carl Icahn until the two sides declared a last-minute truce in their battle for control of the Internet giant.
But the detente hardly means that the event, scheduled for Friday in San Jose, will be a lovefest.
Angry investors are eager to pummel Yahoo's leadership over the company's financial slump and its failure to accept a $47.5 billion takeover bid by Microsoft Corp, among other offers. Count on Yahoo CEO Jerry Yang and his fellow board members fielding some uncomfortable questions.
"You can still expect a heated debate," said Warren Chen, managing director of research for mergers and acquisitions at Glass Lewis & Co., a proxy advisory service in San Francisco.
For much of this year, Yahoo's board has faced withering criticism for its handling of the Microsoft courtship. Many investors considered a deal an antidote to the company's otherwise depressed share price.
Icahn, who has made a career of pressuring troubled businesses to do what he wants, eventually bought 5 percent of Yahoo's shares and launched an effort to replace its board with his own slate in what is known as a proxy contest. After a nasty campaign, during which he repeatedly accused management of bungling the Microsoft negotiations, Icahn settled the matter last week instead of taking it to a shareholder vote at Friday's meeting.
As part of the agreement, Icahn will join Yahoo's board. He also gets control of two other seats, which will be filled from a list of candidates he provided, by Aug. 15.
Eric Jackson, a longtime Yahoo critic who leads a group of investors who collectively own 3.2 million shares, said the settlement with Icahn doesn't get Yahoo's management off the hook.
"With Icahn and the noise of the proxy contest gone away, you could confuse that with it being all fine," he said. "People still place enormous blame on Yahoo for the breakdown of the talks with Microsoft."
Jackson, who runs the investment fund Ironfire Capital, said he plans to withhold his votes from four Yahoo board members to express his unhappiness with the company. Board members who don't get at least 50 percent of the vote for re-election must offer their resignations, although Yahoo doesn't have to accept them.
Brad Williams, a Yahoo spokesman, said about the prospect of pointed questions at Friday's meeting, "We are looking forward to having an open constructive dialogue with our shareholders."
Analysts expect Icahn to continue to pressure Yahoo's board to sell, although his three seats fall well short of a majority on the newly expanded 11-seat body. Whether Microsoft is still interested is unclear.
Icahn will have no official role at Friday's meeting, which will be held at the Fairmont San Jose hotel. There was no word on whether he will attend as a shareholder.
Although still profitable, Yahoo is struggling amid slowing growth and stiff competition with rival Google Inc. Yang has repeatedly tried to reassure investors by touting a three-year revival plan, which includes making Yahoo a must-buy for advertisers, although many analysts call the financial projections overly optimistic.
Signaling his willingness to make hard decisions, Yang agreed to outsource some of Yahoo's search engine advertising to Google. The deal, which is awaiting regulatory approval, is expected to bring in $800 million in extra annual revenue to Yahoo.
Yang, who co-founded Yahoo as a Stanford graduate student with David Filo in 1994, started his tenure as CEO last year following the departure of Hollywood veteran Terry Semel. Given the turmoil under his watch, Yang may be under pressure to resign within a year, according to some analysts and investors.
His challenge is to boost Yahoo's share price, which closed Wednesday at $20.03, to at least $33, the amount of Microsoft's last takeover offer.
David Larcker, accounting professor at the Stanford University Graduate School of Business and co-director of the Rock Center for Corporate Governance, said that even if Yahoo's leadership gets through the shareholder meeting unscathed, investors will turn up the pressure within the next year, absent any progress at the company.
"Investors were saying we'll go along with this for now, but if nothing positive happens in the next year or so, then sure, there will be tremendous pressure," he said.
E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.
This article appeared on page C - 1 of the San Francisco Chronicle
