CNET: Icahn aims for Yahoo fireworks before July 4

June 27, 2008 9:08 AM PDT

Posted by Dawn Kawamoto

Investor activist Carl Icahn is expected to file his definitive proxy by July 4, signaling whether he will ultimately run a dissident slate of directors to unseat a majority of Yahoo's nine board members, or look to oust just a few, according to sources familiar with the billionaire investor.

Icahn is gearing up to share another round on his "views about Yahoo and its management shortly," according to a posting on his Icahn Report blog Friday.

Icahn, who filed another preliminary proxy just the other day, has yet to file his definitive proxy. The definitive proxy will list the final number and names of candidates Icahn wants to run against Yahoo's nine-member board when it holds its annual shareholders meeting on August 1. That definitive proxy will indicate whether Icahn seeks majority control of Yahoo's board seats, or minority representation.

As part of any proxy filing process, a dissident shareholder may face some back-and-forth discussions with the Securities and Exchange Commission, prior to filing their definitive proxy. And, as one would expect, a dissident shareholder would be loath to disregard any SEC comments before filing their definitive proxy.

In his Friday blog post, Icahn notes:


Many of you have been asking me about Yahoo. Please remember I am in the middle of a proxy fight. A proxy fight involves a complicated process of SEC approvals, federal securities laws, filing requirements and a great deal of time and money.

At this time, due to SEC regulations, I do not intend to post your comments regarding the proxy fight. However, I am planning to give you my views about Yahoo and its management shortly. If you wish to be informed I invite you to subscribe. Stay tuned.


Meanwhile, a portfolio manager with Yahoo's third largest investor, Legg Mason Capital Management, expressed reservations Friday about supporting an Icahn board unless the billionaire investor activist can develop a "Plan B" should Microsoft fail to do a deal with the search company, according to a Reuters report.

Robert Hagstrom, a portfolio manager with Legg Mason Growth Trust, was quoted by Reuters at the Chicago Morningstar annual investment conference as saying:


"Icahn has got three things. He wants to fire Jerry, eliminate the severance package and he wants to force the sale...If he can't force Microsoft to buy them, what's plan B? I need a plan B. And if you are going to fire Jerry, who do you hire?"

Meanwhile, some Yahoo investors like Eric Jackson are calling on Icahn to run a minority slate of dissident directors, in an effort to increase his chances of getting representation on the Yahoo board.

Jackson, as well as a source with a proxy solicitation firm, noted that it may be difficult for Icahn to win control of Yahoo's board should no deal with Microsoft loom on the horizon. But even with a minority slate, Icahn may find success in pushing for change from within.

Another option is for Icahn to run a full nine-member dissident slate and hope that proxy advisory firms, such as RiskMetrics, Glass Lewis & Co., and Proxy Governance, advise their institutional investor clients use Icahn's gold proxy card, rather than Yahoo's white proxy card, and vote for all of his nominees.

But absent these advisory services advocating for electing all of Icahn's dissident directors, the investor activist may find these advisory services may be willing to recommended that some of his candidates get elected, noted one source.

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CNET: Icahn set to release his final Yahoo slate

June 20, 2008 10:08 AM PDT

Posted by Dawn Kawamoto

In the coming days, Yahoo investors should expect to see shareholder activist Carl Icahn filing the final version of his proxy, indicating to what degree he seeks to control Yahoo's board and keep the door open to Microsoft.

Icahn, who initially launched his proxy fight to push a merger between Yahoo and Microsoft and subsequently saw talks on even a partial search buyout deal fall through, is expected to print and disseminate his definitive proxy materials within the next two weeks, say people familiar with the proxy process.

That document will indicate whether he plans to try to oust a majority of Yahoo's nine directors and replace them with his candidates to run the company, or if he will seek minority representation on Yahoo's board when the company holds its annual shareholders' meeting on August 1.

Icahn initially put forth a preliminary slate of 10 dissident directors when launching his proxy contest in May.

"If Icahn proposes a majority slate, it signals a takeover of the company...and the institutional advisory services will look at him with caution and look at his motives," said one source with an institutional investor advisory service. "Icahn does not have economic ownership of Yahoo (a controlling stake), but by controlling the board, it will allow him to do what he wants to his benefit without paying a premium to take control of Yahoo."

Influential institutional investor advisory services, such as RiskMetrics Group, Glass Lewis, and Proxy Governance, issue recommendations to their clients on how to vote on proxy matters.
These recommendations are given to mutual funds, pension funds, and asset management companies a week to two weeks before the annual meeting. Some funds have internal policies that require its votes be cast according to an advisory service's recommendations, whereas other funds allow their portfolio managers to make their own call.

Wall Street observers, meanwhile, note investors should not jump to the conclusion that a re-entry of a Microsoft buyout is on the immediate horizon if Icahn opts to run a slate for control of Yahoo's board.

That assessment comes despite Icahn's original motive in launching his proxy fight, which had been to pave the way for Microsoft to acquire Yahoo at a substantial premium. But the software giant has made no public statements it would rebid for Yahoo since it withdrew its sweetened offer of $33 a share in early May.

The software giant, via an employee e-mail that seemed to issue a wink-and-nod to Yahoo shareholders as well, discussed the financial benefits that Yahoo's shareholders would have received if Microsoft had acquired only Yahoo's search business. Microsoft, however, cannot do a tender offer for only part of Yahoo's assets, and it has made no indication it would launch a tender offer for the entire company.

Nonetheless, Microsoft continues to remain interested in bolstering its search capabilities to further drive advertising revenue, as noted in a Financial Times interview with Microsoft CEO Steve Ballmer, prior to the Yahoo-Google search advertising announcement:

The most important application for the foreseeable future...is search. I don't think we can say: 'OK, well, we're going to be in the ad platform business and we're going to do it just on the strength of non-search-based assets.' We don't have to dominate, but we'd better have a darn good chunk of the search market over time.

Icahn, meanwhile, could face a greater chance of getting his dissident slate elected, if he runs for a number of board seats that would constitute a minority slate.

"He is smart enough to know not to propose a full slate because of the ramifications," said the institutional advisory services source. "If he proposed a full slate, even knowing he may later reduce it, it could distract from his message."

Proxy solicitors and investors agree.

"Carl will likely have scaled down his slate when he files his definitive proxy," said one proxy solicitor. "Otherwise, he has to articulate why investors should support all of his directors, and RiskMetrics and Glass Lewis are not inclined to support a change of control...If he says he wants a few seats to be a watchdog (for investors), he'll likely get more support."

Earlier this week, shareholder activist Eric Jackson called on Icahn to run a short slate of dissident directors. Jackson, who has had talks with Icahn's folks, is proposing the billionaire investor run four candidates, rather than nine.

Like Jackson, one hedge fund manager noted that most institutional investors would be reluctant to kick out Yahoo's board and turn it over to Icahn's slate, given it does not have the prior experience and institutional knowledge in running the Internet search pioneer.

"Icahn's in a tough spot right now," said the hedge fund manager.

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Reuters: Yahoo investor asks to weigh in on Microsoft offer

Thu Jun 19, 2008 4:43pm EDT

By Michele Gershberg

NEW YORK (Reuters) - An investor with a minority stake in Yahoo Inc (YHOO.O: Quote, Profile, Research, Stock Buzz) on Thursday urged Microsoft Corp (MSFT.O: Quote, Profile, Research, Stock Buzz) to take its most recent offer for a partial investment directly to Yahoo shareholders and prove its merits.

Mark Nelson, a partner in Mithras Capital, which owns 1.7 million Yahoo shares, said such a move by Microsoft would help shareholders gauge whether the proposal was truly superior to an advertising partnership Yahoo forged with archrival Google Inc (GOOG.O: Quote, Profile, Research, Stock Buzz).

"We have not been able to have our opinion heard," Nelson told Reuters. "If (Microsoft) does indeed have a superior transaction they should flesh it out."

Microsoft abandoned a $47.5 billion offer to buy all of Yahoo last month, but more recently discussed a transaction to take a 16 percent stake in Yahoo and buy its search business for $9 billion as it seeks a stronger foothold in online advertising. Talks broke down last week.

Microsoft said its alternate deal was still open for discussion, though Yahoo maintains that selling its search business would be tantamount to giving up on future growth in the wider online advertising market.

"It is our strong belief that there is an ideal solution to Microsoft's current impasse with Yahoo: Microsoft must take its 'alternate transaction' ... directly to Yahoo shareholders via the upcoming proxy vote," Nelson wrote in a letter he said was e-mailed and faxed to Microsoft Chief Executive Steve Ballmer.

Yahoo faces a proxy battle against billionaire investor Carl Icahn ahead of its annual shareholders meeting on August 1.

Icahn proposed a full slate of nine directors to replace Yahoo's current board, though he initially launched his proxy battle to act as a catalyst for a Microsoft takeover deal.

Icahn has yet to say if he will change his strategy now that Microsoft appears to be out of the picture. He told Reuters early this week he was studying the Yahoo partnership with Google that aims to improve its financial performance.

Eric Jackson, another activist investor in Yahoo, this week proposed that shareholders vote for up to four Icahn board nominees rather than replace all the directors to preserve some stability at the company.

Nelson said he had not spoken with other Yahoo investors about his proposals, which include backing Icahn's full slate.

"We're a substantial Yahoo shareholder who has strong opinions," Nelson said in an interview. "We believe we voice opinions that maybe other Yahoo shareholders have not thought about and may consider in the coming month."

Yahoo says the Google deal could add as much as $450 million in operating cash flow within the first 12 months and leaves it open to working with other partners.

Microsoft has said its proposal would deliver an additional $1 billion a year in operating profit for Yahoo and value its stake in the company at $35 per share.

Microsoft declined to comment. Yahoo officials were not immediately available.
Yahoo shares closed down 18 cents to $22.73 on Nasdaq.

(Additional reporting by Daisuke Wakabayashi in Seattle; Editing by Brian Moss, Phil Berlowitz)

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Kiplinger.com: Yahoo: Playing Too Hard to Get

Some analysts still hold out hope that the Internet company will accept Microsoft's advances and ditch its mismatched relationship with Google. In the meantime, investors should steer clear of Yahoo.

By Anne Kates Smith

June 18, 2008

This is the story of a long courtship gone awry, a rebound relationship, and the dashed expectations of those involved with the ill-fated couple. Lest you think you've wandered onto the wrong Web site, we're talking about a couple of companies -- namely Yahoo and Microsoft -- and how Yahoo shareholders have been buffeted by the bizarre merger dance the two have been doing since January of 2007.

That's when Microsoft first turned a longing eye toward Yahoo's Web advertising business, for which Microsoft was willing to pay a premium to compete better against against Google. At one point in May 2008, Microsoft was willing to pay $33 a share, or $47.5 billion, to acquire Yahoo outright -- a 74% premium to the $19 share price commanded by Yahoo when Microsoft publicly opened bidding at $31 a share on January 31 of this year.

Yahoo executives, believing the company worth something more on the order of $37 a share, spurned the May offer, and Microsoft withdrew it, although negotiations continued. Then, on June 12, the bombshell: Talks with Microsoft were over. Instead, Yahoo would partner with Google in a deal that would outsource part of Yahoo's paid search ad business to Google. Yahoo stock (symbol YHOO) plunged 10% as investors mourned the break-up with Microsoft. Yahoo closed at $22.91 on June 18, 30% below Microsoft's highest offer.

Playing hard to get was a disservice to Yahoo shareholders, says Morningstar analyst Larry Witt. "I really think they had a chance to get at least $33 a share. I don't see anything they can do to make the company worth $33 a share for now. If you're a long-term owner, you'd have a right to be frustrated."

The decoupling of Microsoft and Yahoo occurred despite the matchmaking efforts of shareholder activist Carl Icahn, who took a 4.3% stake in the latter, ostensibly to pressure Yahoo into a deal.
Icahn now is waging a proxy fight to oust Yahoo board members, having introduced his own slate of ten nominees. June 18 marks one year to the day chief executive Jerry Yang's returned to Yahoo, the company he founded in 1994 while a graduate student at Stanford University. Now, his hold on the top job is tenuous. Yahoo's annual meeting, delayed from July 3, is scheduled for August 1.

Although Icahn has offered few detailed suggestions about what Yahoo can do to improve its fortunes independently, he was recently quoted by Reuters as saying that he was "continuing to study" the deal with Google "and that it might have some merit."

The deal specifically calls for Yahoo to run ads supplied by Google beside Yahoo search results and on Yahoo Web sites in the U.S. and Canada. Advertisers will pay Google for each click on those ads, and Google will share some of the revenues with Yahoo. Yahoo says the deal represents some $800 million a year in additional revenues and will boost annual cash flow by $250 million to $450 million.

Like most rebound relationships, this partnership is problematic. For one, it will be subject to intense antitrust scrutiny, given Google's already dominant market share in search-related advertising, despite structuring the deal to downplay such concerns. For instance, Yahoo has the option of making similar arrangements with others (like who, skeptics ask) and it will continue developing and marketing its own search-related and display advertising business.

Assuming the deal goes through, Yahoo may be shooting itself in the foot longer-term, says Morningstar's Witt. "If you're an advertiser advertising on both platforms now, but Google starts providing ads to Yahoo, you might not bother placing ads on Yahoo anymore." Fewer advertisers could lower the demand and, hence, the prices for the key words next to which ads are placed, Witt reasons, because prices of those key words are determined by auction.

Analyst Mark May at Needham & Co. minced no words in a recent note to clients: "We believe this deal diminishes Yahoo's relevance among advertisers and strengthens the hand of a key competitor (Google), that this deal could face regulatory headwinds and that there is uncertainty that the target financial gains can be recognized." Having recently upgraded his opinion of the stock on hopes of a deal with Microsoft, May downgraded Yahoo from a "buy" to a "hold" on June 13.

Key Yahoo executives are also giving up on the company, adding fears of a brain drain to other concerns. Recent departures include consumer products chief Jeff Weiner and data strategy guru Usama Fayyad. The husband-and-wife team that co-founded Yahoo's Flickr photo sharing site, Caterina Fake and Stewart Butterfield, are leaving as well.Should investors follow suit?
Yahoo generated 50%-plus annual revenue growth, on average, in the first half of this decade.
That's ancient history. Look for Yahoo to log revenue growth of 12% this year and 14% next year. Analysts expect earnings per share to be essentially flat this year, but to climb 30%, to 62 cents a share, in 2009.

Indefatigable bulls say Yahoo still has a lot going for it. They say it is a cash cow with little debt, that it is still one of the largest players in an industry that will see robust growth as more and more advertising shifts online, and that its web pages, including Yahoo News, Finance and Sports, are among the most trafficked in the industry.

And a few, including Ben Schachter at UBS Securities, hold out hope that Microsoft will come back. "We continue to believe that, at some point, Microsoft will acquire all of Yahoo," Schachter told clients recently. Eric Jackson, a dissident shareholder who has organized like-minded investors online, says Yahoo "is a broken company with a broken board and a broken senior management team -- but it is salvageable."

Maybe. But for now, the burden of proof -- and almost all of the risk -- is on the bulls. Whether you're already a Yahoo shareholder or someone looking for a tech company for your portfolio, we see better opportunities elsewhere. For starters, you need look no further than Google (GOOG, $562.38) or Microsoft (MSFT, $29.46)

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Chicago Tribune: Memo to blogger Icahn: Give power to the people, not your lawyers

Posted by Eric Benderoff at 6:38 p.m.
Originally posted: June 19, 2008

If Carl Icahn, that thorn in Corporate America’s side, wants to be taken seriously as a blogger, he needs to get his lawyers out of the way.

The Icahn Report went live Thursday after months of delays the activist investor has attributed, at least according to one report, to his lawyers. I’m inclined to believe Icahn (left), since as of this writing, there are no comments attached to any of the six posts his blog launched.

But there are plenty of legal disclaimers and warnings about what you can or can’t post at Icahnreport.com – not exactly a great conversation starter and a harsh approach for a blog.

On the site you are confronted with an unusual a three-paragraph “guidelines for comments” that is peppered with lawyer-like phrases, such as “solely responsible,” “unlawful,” “abusive,” and “we reserve the right...”

Yikes, is this the empowerment Icahn hopes to spread? As a world-famous muckracker, one might expect a more welcoming approach for encouraging a dialogue, which after all is the essence of an engaging blog.

If Icahn can use his influence to bully the nation’s top CEO’s into forcing change, notably Yahoo’s Jerry Yang and former Motorola chief Ed Zander, he needs some thicker virtual skin.

Granted, as a blogger myself, reading some of the comments from readers can be akin to swallowing a poison pill. One can be called all sorts of names—one reader recently called me a knucklehead—but there is much value to the feedback.

It’s a lesson Corporate America is starting to learn, if somewhat reluctantly.

“Even our more conservative clients recognize the power of social media and are starting to put aside their uneasiness about loss of control in order to reap the overwhelming benefits,” Deanna Harms wrote on my Eric 2.0 blog regarding a post on PR strategies in social media. “With transparency comes trust. You can’t have a relationship without it.”

The beauty of a blog is that it allows for “one-on-one comments from people,” said Kelly Cutler, the CEO of Chicago’s Marcel Media, an agency that specializes in the emerging field of social media. “That’s the spirit of blogging. If it’s not a two-way dialogue, it shouldn’t be a blog.”

Icahn, of course, is not the first “celebrity” to share his world view from his own Web-based soap box.

If you looked around the Web on Thursday, you would have learned that Rosie O’Donnell is vacationing with her kids in Orlando and that humorist Dave Barry is amused by a coming reality TV show about an eating-and-regurgitating competition dubbed “Hurl.” At Michael Moore's site, the filmmaker’s head is topped by a Detroit Red Wing’s hat (perhaps to celebrate the recent Stanley Cup victory?), but he hasn’t posted since April.

Icahn is different. He has forced change in America’s boardrooms and his influence can move markets.

Yahoo’s stock price, for instance, remained near $30 after Microsoft’s aborted attempt to purchase the company failed solely because Icahn announced he may start a proxy fight to force a deal. The shares closed Thursday at $22.73 as Icahn reportedly weighs his options in his efforts to elect an alternative slate of directors.

To be sure, Icahn’s comments are interesting if you are an active investor. In a post titled “Absurdity of Corporate Board Elections,” he writes:

“In an attempt to elect nominees to the board in a proxy fight a shareholder is forced to comply with arcane rules for prior notification and to prepare and circulate his or her own proxy statement at great expense. A proxy fight can cost millions of dollars out of the shareholders pocket.”

In another post, this one on Citigroup’s missteps, he writes:

“If shareholders are not allowed to hold poor boards and CEOs accountable, how can our companies compete? Who suffers? In a declining company, it’s not only the CEO receiving huge severance that’s a problem, it’s also the thousands of employees that are fired due to mismanagement.”

Activist blogs can have an impact. Just ask Eric Jackson, who’s blog, Breakout Performance, first tapped into the unhappy ethos of Yahoo shareholders—and later at Motorola—in 2007.

Jackson started a blog to write about leadership and attract new clients for his consulting business.“I was getting about eight hits a day,” he said. Then he wrote a post about then-Yahoo CEO Terry Semel’s mismanagement, “that his leadership team had no idea what they were doing.”

It struck a deep chord among Yahoo investors and even employees, who started writing to him. “I started getting thousands of hits,” and it occurred to Jackson that he was on to something.

“Based on the reactions I got with that initial post, I knew people were annoyed but not organized.”

So he got them organized and ultimately amassed a coalition of 100 people who “pledged their shares to my group. Collectively, we owned 2 million shares, then worth about $60 million.”

Personally, he owned 96 shares of Yahoo, but his career as an activist investor was under way.

Six days after Yahoo’s contentious board meeting last summer, Semel stepped down. Jackson doesn’t take full credit, of course, but he thinks his blog-based group had a big impact.

“It’s not a stretch to see that [a blog] can work for shareholder activism,” Jackson said.

Get your lawyers out of the way, Carl, and let the people help.

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Fox Business and CNBC Asia: A Coup at Yahoo!

From Fox Business, an interview with Eric Jackson on May 13th discussing Yahoo!

Eric Jackson, an activist investor and influential shareholder, discusses his plans to replace Yahoo!'s board of directors at the firm's upcoming shareholder meeting.



Here is a CNBC Asia interview from May 5th with Eric Jackson, discussing Yahoo!'s next move.

Yahoo! shares tumbled 15% after Microsoft abandoned its bid for the company. Some shareholders are upset by the turn of events. Among them, Eric Jackson, president of Ironfire Capital. He is leading a group of shareholders, who collectively own 2 million Yahoo shares, to withhold their votes in the upcoming general meeting. He updates CNBC's Maura Fogarty on the situation.

Click on this link to watch the video.

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Fox Business: Yahoo Shareholder on Failed Microsoft Deal

Eric Jackson Interview with Neil Cavuto on Fox Business from May 5, 2008.

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Reuters: Even post-Microsoft, Icahn's Yahoo slate attracts

By Michele Gershberg
Tue Jun 17, 2008 6:26pm BST

NEW YORK (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research) investors are showing more interest in an alternate board slate proposed by billionaire Carl Icahn that was first formed to deliver the company to Microsoft Corp (MSFT.O: Quote, Profile, Research) in a now-defunct buyout.

With Microsoft out of the picture, it is not clear whether Icahn will reshape his proxy fight. But several investors say they would be willing to back some or all of his nine board nominees at a shareholder meeting on August 1, at the very least to show disappointment over the failed talks.

Increasingly, investors are citing a hybrid option that would put several of Icahn's candidates on the board to act as watchdogs, while preserving many of Yahoo's existing stewards.

Mark Nelson, a partner at Mithras Capital, which owns about 1.7 million Yahoo shares, said he would back Icahn's entire slate unless the current board took a dramatic about-face.

"We believe a truly independent board is what's needed at Yahoo and not one that has these obviously deep and emotional connections to the company," Nelson told Reuters.

"Yahoo could show good faith by having Jerry Yang resign as CEO and get a new person in there. In that scenario, a modified slate would make more sense."

A second shareholder, who asked to remain anonymous, agreed.

"He should go ahead," the investor said. "It's an indicator of the widespread dissatisfaction of shareholders with Yahoo's management and the board.

"If nothing else, (it's) to keep them honest and nobody's really sure if Microsoft is completely out of the picture," the investor added.

Some of Yahoo's biggest shareholders, including Legg Mason and Capital Research Management, have yet to make their views known on the board.

Dissident investor Eric Jackson called on Monday on these stakeholders to back a hybrid board with five existing directors and four of Icahn's nominees, since it will now have to steer Yahoo toward organic growth rather than a buyout.

"I want Icahn to win outright, but I am putting forward this 'Third Option' because I fear several large shareholders will worry about the operational abilities of Icahn and his team," Jackson said in a statement.

ICAHN STILL WEIGHS OPTIONS

Talks over Microsoft's $47.5 billion, $33-per-share offer to buy Yahoo fell apart in May. On Thursday, the companies said they failed to reach a smaller deal for Microsoft to take a stake in Yahoo and buy its search business.

Yahoo shares have tumbled nearly 12 percent since then to about $23 on Tuesday, with investors who had bet on a Microsoft deal further paring their stakes.

Instead, Yahoo forged a search advertising deal with arch rival Google Inc (GOOG.O: Quote, Profile, Research) that it estimates will add as much as $450 million in operating cash flow within the first year and will leave it free to pursue other partnerships.

Yahoo contends it was still open to an outright acquisition by Microsoft, but the partial deal would strip its ability to grow its other online advertising businesses, including display ads.

Icahn told Reuters on Sunday he was still studying the Google deal, which he said "might have some merit" and looks like a better choice than a partial deal with Microsoft.

Icahn holds about 59 million shares, or more than 4 percent on Yahoo. He could still change tack and reach a compromise with Yahoo's board to take a handful of seats instead of trying to replace all of its directors.

Investors acknowledged a lot could change ahead of the Yahoo shareholder meeting, particularly if new details surface about the potential of the Google deal. But some said their immediate gut reaction is still in Icahn's favor.

Walter Price, senior portfolio manager at RCM Capital Management LLC, said that, if Icahn tries to work with Yahoo directly, he may succeed in getting one director on board.

"Microsoft has moved on and Yahoo has moved on, so I'm not sure what an alternative slate would do," said Price, whose firm sold 1.91 million of the Yahoo shares it owned in the first quarter and which owned 18,245 Yahoo shares as of the end of March.

"Maybe having a director from Icahn, if they view him as looking to benefit the shareholders and bring a sense of urgency to the efforts of Yahoo, I think that would be probably acceptable to Yahoo," he said.

Yahoo officials and Icahn had no immediate comment.

(Additional reporting by Muralikumar Anantharaman in Boston, Dane Hamilton in New York and Anupreeta Das in San Francisco)

(Editing by Andre Grenon)

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Wall Street Journal: Court Denies Yahoo Holders Expedited Case

By JESSICA E. VASCELLARO
June 17, 2008; Page B3

A Delaware Chancery Court judge denied a request by Yahoo Inc. shareholders to expedite their case against Yahoo as investor Carl Icahn weighed whether to proceed with his proxy battle to replace the Yahoo board.

People familiar with Mr. Icahn's thinking say that he hasn't abandoned hope of winning at least some board seats, but that he is still examining the merits of a recently announced search advertising deal with Google Inc. which Yahoo announced as a way to generate incremental operating cash flow last week.

Separately, one major Yahoo shareholder said in an interview Monday that now that the Google deal has been announced -- and Microsoft and Yahoo are no longer discussing an alternative -- the shareholder is contemplating backing a more limited slate of nominees as opposed to trying to replace the entire Yahoo board. Another Yahoo investor, Eric Jackson, published an article on TheStreet.com urging shareholders to support a compromise between Yahoo and Mr. Icahn by voting for a slate of five existing Yahoo board members and four of Mr. Icahn's nominees.

Yahoo received some more good news Monday as Delaware Chancellor William Chandler denied shareholders' request to bring their case to trial before Aug 1, the date of Yahoo's annual shareholder meeting.

The plaintiffs -- two Detroit pension funds -- were pushing for the court to expedite the case on the grounds that Yahoo's recently announced advertising deal with Google was intended to discourage Yahoo shareholders from supporting Mr. Icahn's effort to replace the Yahoo board.

The pension funds sued Yahoo in February over the Internet company's handling of an acquisition offer from Microsoft Corp.

In his letter, Chancellor Chandler asked both sides to confer to set a "prompt" schedule for hearing Yahoo's motion to dismiss the case. He wrote that the court could decide that motion before Aug. 1.

--Gregory Zuckerman contributed to this article.

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New York Times: Yahoo Shareholder Proposes Compromise on Icahn Slate

June 17, 2008, 7:32 am
From DealBook.

Dissident Yahoo investor Eric Jackson urged fellow shareholders on Monday to vote for a board comprising five existing directors and four nominees from billionaire investor Carl C. Icahn’s slate.

Mr. Jackson, who leads a group of 146 investors holding 3.2 million Yahoo shares, said that, while he supported Mr. Icahn fully, he recognized that major shareholders may not. So he proposed a “third option” to create a new board that is more responsive to shareholders’ concerns.

Mr. Icahn, who owns more than 4 percent of Yahoo, launched a proxy battle in May to replace the Web pioneer’s board in the wake of Microsoft’s failed effort to acquire the company.
“Neither side running for election can guarantee that Microsoft will ever come back to the table with an offer for Yahoo,” Mr. Jackson said in a statement first published on TheStreet.com. “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).

“I want Icahn to win outright, but I am putting forward this “Third Option” because I fear several large shareholders will worry about the operational abilities of Icahn and his team.”
Mr. Jackson said his move was aimed at major Yahoo shareholders, including Capital Research, Legg Mason and Vanguard, as well as proxy advisory firms such as RiskMetrics and Glass Lewis.
Yahoo last week signed a Web search advertising deal with Google after talks with Microsoft broke down. The news sent Yahoo shares plunging more than 17 percent.
Mr. Icahn told Reuters Sunday that, while the Google deal is not the same as a buyout offer from Microsoft, it might have some merit. The billionaire investor declined to say if he would continue to press his proxy battle.

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WSJ.com: Let My Short-Sellers Go

Posted by Heidi N. Moore

June 12, 2008, 11:26 am

There are short-sellers, and then there are short-sellers.

So says activist hedge-fund manager William Ackman, the founder of Pershing Square Capital Management and scourge of companies ranging including bond insurer MBIA. Ackman’s attentions are currently focused on retailing giant Target.

In a conversation with Deal Journal’s Dennis Berman at Wednesday’s Deals & Deal Makers conference, Ackman addressed one of the hot questions of the day: are short-sellers (such as David Einhorn) being irresponsible when they advertise their negative views of companies? Or are these investors, who profit when stock prices decline, helping to keep the markets informed?
Ackman, who declared himself a passionate advocate of the First Amendment, said it depends.

Short-sellers who try to spread rumors in the market, he noted, should be prosecuted. But short-sellers who have done an analysis of a company’s financial standing should be free to make their points publicly. “Is there room for a 40-to-1 levered institution that is so fragile that a 38-year-old short-seller can go on TV and shake confidence?” Ackman asked. “If the whole country is only long, on margin, we’re going to have bubble after bubble. We want businesses that can stand critique by any investor.”

Ackman, of course, has experienced first-hand the backlash from companies against short-sellers. In his battle with MBIA in 2002, Ackman wrote a 66-page report about the company’s risky investments and had several lawyers look it over, and made it available to investors. The company sicced Eliot Spitzer on him, alleging that he was trying to manipulate the stock to his advantage. The SEC followed but dropped its investigation. Einhorn also ended up in an SEC investigation prompted by his remarks about small-business development concern Allied Capital. “If this is the regulatory response to someone criticizing a public company,” Ackman noted, then things are dire indeed.

Ackman unabashedly supports the rights of short-sellers like Einhorn to make their points in public forums. He argued that if Lehman had listened to Einhorn in November and raised capital to forestall concerns about its capital position, the securities firm could have avoided some of its current perception troubles and Einhorn would have posted losses on his short bets. “If the firm listened to Einhorn back then and raised capital, perhaps it wouldn’t be in these straits,” he said. “If you’re long, you can go into Barron’s and pump your stock and no one looks askance. If Einhorn says, ‘I have concerns about Lehman’s balance sheet,’ the New York Times writes a scathing article.”

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San Francisco Chronicle: Investor proposes middle ground in Yahoo election

Oust only 4 board members, he says

By VERNE KOPYTOFF
SAN FRANCISCO CHRONICLE
Last updated June 16, 2008 7:54 p.m. PT


Yahoo Inc. shareholders should take a middle ground in the Web portal's upcoming board election fight, an investor activist proposed Monday in the wake of the recently failed Microsoft Corp. takeover bid.

Rather than supporting the status quo (as the company wants), or a full house cleaning (as billionaire investor Carl Icahn wants), shareholders should vote for a compromise: the ouster of four members of the nine-member board, said Eric Jackson, who leads a group of Yahoo shareholders who together own 3.2 million shares.

"It sends a signal to the existing board and existing management that change is needed," he said.
Yahoo, based in Sunnyvale, Calif., is facing a high-profile battle for control of the company after rejecting a $47.5 billion acquisition proposal by Microsoft. Many investors are angry at Yahoo's board for how it handled the negotiations, which collapsed May 3 when Microsoft withdrew its offer.

Shareholders will decide the board's future at Yahoo's annual meeting, to be held Aug. 1 in San Jose. Icahn, who has a long history of agitating for corporate change, has proposed a rival slate of directors.

But Jackson, who agrees with many of Icahn's criticisms of Yahoo, is campaigning for the election of only four of the billionaire's nominees, saying that large institutional shareholders are concerned about what an entirely new board would do. Icahn's plan is to sell the company to Microsoft, which Jackson said is unlikely given that Microsoft has repeatedly said it is no longer interested in a takeover.

Jackson is advising Yahoo shareholders to approve the following Icahn nominees: Adam Dell, a venture capitalist and younger brother of Dell Inc.'s Michael Dell; Lucian Bebchuk, a Harvard University law professor; John Chapple, former CEO of Nextel Partners; and Edward Meyer, a former advertising industry CEO.

The incumbent Yahoo board members who should stay, according to Jackson, are Vymesh Joshi, a Hewlett-Packard executive, Activision CEO Robert Kotick; Citizens Communications CEO Maggie Wilderotter, investor Gary Wilson and Yahoo CEO Jerry Yang. Notably absent is Yahoo Chairman Roy Bostock, whom Jackson holds largely responsible for the breakdown in talks with Microsoft.

By limiting Icahn's slate to four seats, Jackson said, Yahoo's employee severance plan -- which could cost up to $2.6 billion -- would not be triggered. At the same time, the infusion of new blood would make the company more accountable to shareholders while keeping experienced management in place, Jackson added.

Jackson's history with Yahoo dates to its last shareholder meeting, when he campaigned for the ouster of the board over the company's sluggish financial performance and what he described as excessive compensation. Investors failed to toss out any board members, but they succeeded in loudly voicing their complaints.

Last week, Yahoo signed a search engine advertising deal with rival Google Inc. that it billed as a solution to some of its financial struggles. Icahn weighed in on the agreement for the first time Monday, saying in an interview with Reuters that he continues to be disappointed with Yahoo's management, "but the Google deal might have some merit."

He said he would study the deal, but didn't comment on whether he would continue with his boardroom fight, known as a proxy contest. Still, he got some support in his effort to unseat Yahoo's board when Mithras Capital, an investment firm that holds 1.7 million Yahoo shares, said in a letter that it would vote for his slate, following the lead of several other large investors, including T. Boone Pickens.

Separately, a Delaware judge rejected an effort by two Detroit pension funds to expedite a shareholder suit they filed against Yahoo and have it decided before the company's shareholder meeting.

Also Monday, Jeff Weiner, an executive vice president of Yahoo, confirmed he is leaving to
become executive in residence at Greylock Partners and Accel Partners venture capital firms.

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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 Street.com, 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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Digital Daily: Icahn’t Has Yahoo … Or Can I?

From Digital Daily
By John Paczkowski

Posted at 5:18 AM PT on June 16, 2008

Carl Icahn has finally broken his silence. The outspoken billionaire investor who’s been oddly quiet since Yahoo (YHOO) announced its advertising partnership with Google (GOOG), finally commented on the deal this morning, saying it “might have some merit.”

In a brief interview with Reuters, Icahn seemed oddly reserved for someone who, up until last week, had always been ready with an unkind word and an outstretched middle finger for Yahoo and its fumbling leadership. Apparently, holding 59 million shares in a company that’s somehow managed to undermine a merger deal with Microsoft (MSFT) that would have valued it at up to $47.5 billion has taken some of the spring out of his step. “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 said. “I continue to be extremely disappointed with the Yahoo management, but the Google deal might have some merit and seems to be better then the alternative deal proposed by Microsoft.”

Icahn offered no comment on the future of his proxy fight for the company’s board, though one would imagine he must be having some second thoughts about it now that Microsoft has thrown up its hands in disgust and has apparently walked away from the negotiating table for good. And the “change of control” provisions that allow Google or Yahoo to terminate the partnership they’ve just inked in the event that a majority of Yahoo’s board is replaced at its upcoming annual shareholders meeting in August can’t be sitting well with him either.

But not to worry, dissident Yahoo investor Eric Jackson has a plan that may right the company and prevent its current proprietors from driving down its value once again. He’s urging fellow shareholders to vote for a board slate that includes four directors proposed by fellow activist Carl Icahn and five from Yahoo. “I want Icahn to win outright, but I am putting forward this ‘third option’ because I fear several large investors will worry about the operational abilities of Icahn and his team,” Jackson wrote in an essay entitled “Third Option for Yahoo.”

So who would Jackson like to see elected to Yahoo’s board? From Icahn’s slate he recommends Adam Dell, Lucian Bebchuk, John Chapple, and Edward Meyer. And from Yahoo’s existing board Vyomesh Joshi, Robert Kotick, Maggie Wilderotter, Gary Wilson and Jerry Yang.
Jerry Yang? Really?

“Although I have been disappointed with the results of Jerry Yang’s tenure as CEO and hold him accountable for the poor outcome with Microsoft, I believe that–as a co-founder–he should remain on this board,” Jackson explained. “Whether or not he remains as CEO is something for the new board to determine. I frankly hold Mr. Bostock [Yahoo Chairman Roy Bostock] more responsible for the breakdown in talks with Microsoft. He supposedly has much more experience in such deal-making matters than Yang, and I find it puzzling that he would choose not to attend that fateful May 3 meeting in Seattle, which led to Microsoft finally pulling the plug on their offer.”

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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 TheStreet.com. "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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CNET: Activist shareholder calls for Icahn-Yahoo combo slate

June 16, 2008 6:02 AM PDT
Posted by Dawn Kawamoto

Amid much debate over Yahoo's future, activist shareholder Eric Jackson offered his own suggested slate of directors Monday, which includes four from fellow activist Carl Icahn's slate and five from Yahoo's.

Jackson, who outlined his "Third Option for Yahoo" in a column in TheStreet.com, suggested the combo slate for several reasons.

Investors may be reluctant to throw out all of Yahoo's nine-member board, given that Microsoft has not publicly stated any interest in making another bid for the search pioneer. That means that whoever is elected to Yahoo's board would likely have to offer guidance and governance to the company for one year, which is the length of the board term.

Jackson cites operational continuity, elimination of potential impediments for future buyouts of the company, greater accountability to shareholders, and change as the drivers for his "Third Option for Yahoo."

"I want Icahn to win outright, but I am putting forward this 'third option' because I fear several large investors will worry about the operational abilities of Icahn and his team," Jackson wrote in his column.

And whom would Jackson get to fill Yahoo's board of directors?

For starters, Jackson would advocate that investors vote for these members of Icahn's dissident slate: Adam Dell, Lucian Bebchuk, John Chapple, and Edward Meyer.

Jackson would also recommend that Yahoo shareholders vote for existing board members Vyomesh Joshi, Robert Kotick, Maggie Wilderotter, Gary Wilson, and Jerry Yang.

Says Jackson about his recommended changes:

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. They are also responsible for ladling out excessive stock options to their fellow directors and senior executives over the last four years.

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Reuters: Yahoo investor urges board compromise with Icahn

Mon Jun 16, 2008 1:49pm BST

By Anupreeta Das

SAN FRANCISCO (Reuters) - Dissident Yahoo Inc investor Eric Jackson on Monday urged fellow shareholders to vote for a board comprising five existing directors and four nominees from billionaire investor Carl Icahn's slate.

Jackson, who leads a group of 146 investors holding 3.2 million Yahoo shares, said that while he supported Icahn fully, he recognized that major shareholders may not. So he proposed a "third option" to create a new board that is more responsive to shareholders' concerns.

Icahn, who owns more than 4 percent of Yahoo, launched a proxy battle in May to replace the Web pioneer's board in the wake of Microsoft Corp's failed effort to acquire the company.

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

He added: "I want Icahn to win outright, but I am putting forward this "Third Option" because I fear several large shareholders will worry about the operational abilities of Icahn and his team."
Jackson said his move was aimed at major Yahoo shareholders, including Capital Research, Legg Mason and Vanguard, as well as proxy advisory firms like RiskMetrics and Glass Lewis.
Yahoo last week signed a Web search advertising deal with Google Inc after talks with Microsoft broke down. The news sent Yahoo shares plunging more than 17 percent.

Jackson became the star of Yahoo's 2007 annual meeting when he accused then-chairman and CEO Terry Semel of mismanaging the company and failing to do more to revive its falling stock price. He also spearheaded a campaign against board-nominated directors, resulting in a hefty minority vote against the re-election of Semel, who stepped down soon after.

In May, Jackson launched a "vote no" campaign, reaching out to Yahoo shareholders via the Internet to urge them to vote against Yahoo directors.

RECOMMENDED CHANGES

Jackson said on Monday that the three members of Yahoo's compensation committee, including Chairman Roy Bostock, and a fourth director, Softbank Capital's Eric Hippeau, should not be re-elected.

"I frankly hold Mr. Bostock more responsible (than Yahoo CEO Jerry Yang) for the break-down in talks with Microsoft," wrote Jackson, who runs investment firm Ironfire Capital and personally owns only a handful of Yahoo shares.

"He supposedly has much more experience in such deal-making matters than Yang," Jackson wrote, "and I find it puzzling that he would choose not to attend that fateful meeting on May 3rd in Seattle, which led to Microsoft finally pulling the plug on their offer."

Yang met with Microsoft Chief Executive Steve Ballmer on May 3 in a last attempt to negotiate before the software giant rescinded its offer to buy all of Yahoo. Ballmer had sweetened the offer to $33 a share, but Yahoo would not go below $37, sources told Reuters earlier.

Jackson endorsed Yang's re-election, but left it to the new board to determine whether he should remain chief executive.

From the Icahn slate, he endorsed venture capitalist Adam Dell, who is Dell Inc chief Michael Dell's brother; Harvard law professor Lucian Bebchuk; former Nextel CEO John Chapple; and former Grey Global CEO Edward Meyer.

Jackson said electing a minority of Icahn's nominees to Yahoo's board would also keep a $2.6 billion severance plan from being triggered through a change of control clause, which would happen if Icahn's entire slate was elected.

(Editing by Lisa Von Ahn)

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TheStreet.com: Activist Investor: Take the Third Option on Yahoo!

From TheStreet.com

By Eric Jackson
06/16/08 - 08:06 AM EDT

The timing was impeccable when I opened my mail Friday and found Yahoo!'s(YHOO - Cramer's Take - Stockpickr) proxy statement with a cover note that started: "The vote you will cast for directors at Yahoo!'s August 1, 2008 annual meeting is the most important for stockholders in our history." I couldn't agree more.

Carl Icahn is seeking to oust the entire Yahoo! board at that meeting. There's been a barrage of letters and counter-letters between Icahn and Yahoo! Chair Roy Bostock in the last few weeks, and Yahoo! shareholders have been faced with a binary choice for their vote at the upcoming election. I want to outline and advocate for a Third Option.

To this point, Icahn has made the case that the current board bungled the negotiations with Microsoft(MSFT - Cramer's Take - Stockpickr), leaving a breath-taking amount of shareholder value on the table. They also approved an employment retention and severance package in February that was effectively a poison-pill, as it could tack on $2.6 billion to the price any acquirer would pay to buy company. Icahn argues this package was put in place to deter Microsoft and keep Yahoo! independent. Two reasons why Yahoo! might want to do this is (1) an emotional attachment the co-founders have for their company, and (2) the lavish senior executive and director compensation that has been paid out over the past few years. (The non-executive Yahoo! directors, on average, pay themselves twice as much as the non-executive Google directors -- $500,000 a year vs. $250,000, according to the most recent proxies from both companies.)

I am a Yahoo! shareholder and have pulled together a group of other Yahoo! shareholders with 3.2 million shares owned collectively (worth $74 million at today's prices). I happen to agree with Icahn's arguments and support his slate; so do most retail investors and smaller institutional and hedge fund investors, according to unscientific conversations I've had over the last 6 weeks.

Yahoo!'s argument for why the current directors should keep their jobs is that Icahn's team has no plan to operate the company if he wins. It also appears he has little leverage to bring Microsoft back to the negotiating table. They point to Icahn's existing suggestions to simply offer to sell the company to Microsoft for $34.375, fire Jerry Yang as CEO, and hire someone like Eric Schmidt as CEO. They and others have also criticized Icahn's slate as not having enough "Internet experience." They warn that Yahoo!'s newly approved "retention package" will kick in if Icahn wins 5 or more board seats in this proxy contest. Such an outcome would be classified as a change in control, meaning Icahn's new group couldn't change any employee's job description or location without potentially incurring up to a $2.6 billion fee (paid for by Yahoo! shareholders). Reading between the lines, Yahoo!'s board is saying: we know our four-year track record is poor and we understand the shareholder anger over us not consummating a deal with Microsoft, but you should still vote for us because we can operate this company better than Icahn and at less cost to you shareholders.

Let me be clear that I reject this argument. I have been seeking major changes to Yahoo!'s board since January 2007. Many other shareholders have wanted changes to Yahoo!'s board for some time. At last year's annual meeting, 36% of Yahoo! shareholders voted against the re-election of the three directors on the Compensation Committee, as well as high protest votes against every other director, in part due to mass frustration with the under-performance of this company.

However, I recognize that there are some large institutional shareholders who will be persuaded by Yahoo!'s argument over Icahn's argument.

More importantly, I fear that a majority will side with Yahoo!, just as a majority of large holders sided with Motorola(MOT - Cramer's Take - Stockpickr) management in May 2007 instead of Icahn, before the gravity of the company's problems fully showed themselves.

Therefore, this article is directed to those large holders in Yahoo! like Capital World Investors, Capital Research, Legg Mason(LM - Cramer's Take - Stockpickr), Vanguard, State Street(STT - Cramer's Take - Stockpickr), Citi Investment Research, Fidelity, BNY Mellon, and T. Rowe Price(TROW - Cramer's Take - Stockpickr). It is also directed to the large proxy advisory firms RiskMetrics, Glass Lewis, and ProxyGovernance.

A "Third Option"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.

There are 9 spots up for election on this year's Yahoo! board. My "Third Option" would be to vote in 5 from the existing board and 4 nominees from Icahn's slate. Whichever 9 individuals gets the most number of votes will serve on the new board.

In doing so, you will ensure the following:

• Change: After the company's last four years of poor performance and the great disappointment with the outcome of the Microsoft talks, shareholders clearly want change. This "Third Option" will create a new board. The old directors who remain will be more responsive and shareholder-friendly, as a result of a clear message being sent from this election.
• Heightened Accountability to the Will of Shareholders: There will be full accountability within board meetings by ensuring that shareholders select four powerful new voices to sit around the table representing their interests
• Removal of Impediments to a Future Acquisition: The costly $2.6 billion severance/ "poison pill" plan will not be triggered through a "change of control" provision and could be immediately rescinded by the new board after the election, so as not to deter future potential acquirers of Yahoo!
• Operational Continuity: The operational continuity of the company will be assured. You will continue to have the existing management team in place (until the new board makes changes in the future as needed), as well as a majority of the current board to ensure a continuity of the issues which have been discussed and grappled with at the board level over the last year.

Neither side running for election can guarantee that Microsoft will ever come back to the table with an offer for Yahoo! 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.

Which Yahoo! Directors Should Be Re-elected?

I endorse these five Yahoo! directors to remain on the board under this "Third Option" scenario, for reasons explained below:

• Vyomesh Joshi, EVP from HP
• Robert Kotick, Chair & CEO of Activision
• Maggie Wilderotter, Chair & CEO of Citizens Communications
• Gary Wilson, Private Investor
• Jerry Yang, Co-Founder of Yahoo!

In my opinion, the current members of Yahoo!'s Compensation Committee (Chairman 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 annual meeting. They are also responsible for ladling out excessive stock options to their fellow directors and senior executives over the last four years. I also believe that Eric Hippeau should not be re-elected because he, like Art Kern, has been on the board for over 12 years. That's simply too long, given the relatively poor performance of the company in these past four years. It is time for new blood.

Although I have been disappointed with the results of Jerry Yang's tenure as CEO and hold him accountable for the poor outcome with Microsoft, I believe that -- as a co-founder -- he should remain on this board. Whether or not he remains as CEO is something for the new board to determine. I frankly hold Mr. Bostock more responsible for the break-down in talks with Microsoft. He supposedly has much more experience in such deal-making matters than Yang, and I find it puzzling that he would choose not to attend that fateful May 3 meeting in Seattle, which led to Microsoft finally pulling the plug on their offer.

Which Icahn Nominees Should be Elected?

From Icahn's slate, there are many worthy candidates. However, I believe the best four candidates to serve on the new Yahoo! board are:

• Adam Dell: The younger brother of Michael Dell, he is a Web venture capitalist. He has arguably the most "Internet experience" of anyone on Icahn's slate. He also knows Yahoo! well through selling HotJobs to the company.
• Lucian Bebchuk: The Harvard professor and director of Harvard Law School's program on corporate governance. He is also an esteemed researcher and outspoken critic on excessive executive compensation. He would be the perfect antidote for what ails Yahoo! on that particular issue.
• John Chapple: The former CEO of Nextel Partners, which he sold to Sprint. If nothing else, he understands the virtues (for his shareholders at least) of selling high rather than selling low. We would welcome such perspectives on Yahoo!'s board. He also brings Fortune 500 CEO experience to the board table.
• Edward Meyer: The former CEO of large advertising agency Grey Global Group. Yahoo! needs to sell to advertisers like Grey if it is to have a future. Therefore, Meyer will ensure that perspective is represented on the new board.

Why shouldn't Icahn or his deputy Keith Meister be elected? I want Icahn to win outright, but 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. If he wasn't, we would only be able to vote for the existing board members.

But the "Third Option" is about electing a "short slate" of directors with highly relevant professional, industry, and research experience to make Yahoo!'s board better. These four nominees meet that criteria and will be, I believe, appealing to a majority of investors.
To move forward as Yahoo! shareholders, we need to turn the page with this "Third Option" and not remain stuck in the past with the existing failed board.

Most Yahoo! shareholders I've communicated with since the break-down in discussions between Microsoft and Yahoo! last week are still numb and angry.

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."

At the time of publication, Jackson was long YHOO.

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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US News & World Report: At Yahoo, America's Most Endangered CEO

June 13, 2008 12:05 PM ET Rick Newman Permanent Link

A lot of CEOs these days get criticized—and sometimes prosecuted—for overinflating the value of their company's stock. One prominent exception: Yahoo CEO Jerry Yang, who seems intent on depressing the value of Yahoo shares.

The mission Yang sees for himself, of course, is to keep Yahoo independent, or at least keep it out of the claws of archrival Microsoft, which has now made two attempts to buy all or part of Yahoo. OK, three cheers for the little guy battling Goliath, but seriously: How in the world does Jerry Yang hold onto his job?

When Yang rebuffed Microsoft the first time, he forfeited a premium of about 40 percent that shareholders would have earned had Microsoft bought Yahoo. The share price fell to the low 20s, compared with Microsoft's offer of $33 per share.

Now Yang has driven down Yahoo's value again. Microsoft came back, looking to buy a smaller portion of the company for about $35 a share. After negotiations broke down, Microsoft walked away from that deal too, as Yahoo, meanwhile, announced a partnership with Google that has dubious prospects of being approved by regulators. The stock, which had drifted up a bit on renewed hopes of a Microsoft deal, is down once again, knocking around in the low 20s.

In addition to optimizing the value of the company, a CEO is also responsible for articulating a strategic vision and putting people in place who are capable of executing it. Except, apparently, at Yahoo. The company has invested a lot of money to develop a proprietary search tool able to compete with Google's. But if the Google deal goes through, Yahoo would basically be outsourcing search to its biggest competitor. So is Yahoo in the search business or not? And if it isn't, what is its core business? "It would be helpful if Yahoo could finally articulate what it is and where it thinks it's going," says Eric Jackson, an activist Yahoo shareholder who advocates a shakeup of the board of directors. "They've failed to do that."

One outcome may inadvertently help Yahoo refine its focus. Google and Yahoo are the No. 1 and 2 search engines, and if Google took over Yahoo's share it would fortify what is already close to monopoly power for Google. So regulators may not approve the deal, leaving Yahoo back in the search business. But that's like backing into a business strategy, or worse—letting the government define it for you.

There's a lot more to come in this saga, especially with corporate raider Carl Icahn trying to replace Yahoo's board with one that will overrule or oust Yang, in order to engineer a sale to Microsoft or another buyer. Yang has continually tried to buy time, and surprised many analysts by managing to fend off Microsoft and keep his company independent. But time is going to run out. Top talent has been leaving Yahoo, the company's drift is strengthening its competitors, and shareholders are getting impatient. "Jerry Yang will be fired soon," predicts Silicon Valley consultant and blogger Sramana Mitra. It's an exit that is becoming the most melodramatic spectacle in corporate America.

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TheStreet.com: The Activist Investor: Lehman's Fuld Under Fire

From TheStreet.com
by Eric Jackson
06/12/08 - 12:59 PM EDT

CFO Erin Callan has been the public face for Lehman Brothers (LEH - Cramer's Take - Stockpickr) over the past six months, trying to convince shareholders that all is well with the smallest of the big investment banks. She failed, and that's why she got sent back to the firm's Investment Banking group this morning and why COO Joseph Gregory got ousted.

CEO Richard Fuld has a sterling reputation on Wall Street, and he has seen trouble before and navigated through it. The Long-Term Capital Management imbroglio from 1998 has been often cited as the last example of Lehman fighting off predictions of its demise. Fuld was there then and is firmly in command now. However, after what he allowed to transpire, particularly between Callan and hedge-fund manager David Einhorn over the past several weeks, he needs to be put under the spotlight now.

It was only in December that investors were congratulating Lehman for side-stepping the credit crunch that had hit their competitors between the eyes. That good fortune vanished when the ball dropped in Times Square to herald in 2008. Lehman has been under fire ever since, because of a number of poor decisions which began to show themselves.

Fuld yielded the spotlight to the CFO, who only took the position last November, and that's been a mistake. You might have thought he was playing bridge with Jimmy Cayne this whole time, based on how little we've seen or heard from him.

For the Icarus-like Callan, her brief CFO stint has seen lavish media praise and now a harsh fall from grace in the most public way. Four months after her promotion to CFO, Portolio magazine called her "Wall Street's most powerful woman". (Zoe Cruz relinquished that title when she left Morgan Stanley (MS - Cramer's Take - Stockpickr) amid large losses from her group last year.) Fellow women execs from the financial world voiced support for Callan. 85 Broads, a Web site for women in the financial industry, declared Callan a "rock star" CEO who is "drop-dead gorgeous with a brain to match."

The public attention that comes with the label of "most powerful woman on Wall Street" is a double-edged sword; ask Cruz or Citi's (C - Cramer's Take - Stockpickr) Sallie Krawcheck, who also was moved out of the CFO post at that firm. The press often praises women on the way up with glossy profiles, only to pounce immediately when trouble comes.

Callan's big undoing in these last six months has been her penchant for bravado-laden predictions, which she has had to continually back-track.

Here's a recap:

Earlier this year, Lehman bought up $2 billion in Alt-A loans (i.e., riskier mortgages). "We saw a great opportunity," said Callan in March. The current quarter has had more than $2.8 billion in losses of these loan types.

In January, she predicted that Lehman's return on equity would average in the mid- to high-teens this year. It's around 9%.

In February, Lehman raised $1.9 billion. Callan said at the time that it "took care of our full year needs." In late March, it raised an additional $4 billion and then another $6 billion earlier this week.

Additionally, for several days in March, many worried that Lehman was the next Bear Stearns, further adding to the market's turmoil. Its stock price plummeted from $45.99 on March 13 to $31.75 on March 17, the day before the release of its first-quarter earnings.

After Lehman exceeded expectations with those results, its stock snapped back 46% and the Callan swagger returned. She walked down to the trading desk following the call and, according to The Wall Street Journal, "high-fived" her colleagues. It seemed as though the storm clouds would pass.

The Einhorn Factor

David Einhorn, founder of the $6 billion Greenlight Capital, became Callan's nemesis.
Einhorn is the anti-Callan. He hasn't been perfect in his calls (being on the board of New Century, which was one of subprime's first big casualties), but he knows how to make money with average annual net returns of 25% since 1996. Einhorn puts substance before style.

Einhorn began questioning Lehman three weeks ago, after Greenlight's analysis showed that the firm had booked an unusually large number of unrealized gains in the first quarter -- 10 times the average from previous quarters -- which marked up equity positions that were not publicly traded.

Activist investing is typically practiced by long-only hedge funds. They use their "ownership" in the company as justification for calling for improvements that will increase shareholder value. Although companies can respond by trying to paint such investors as "short-termists," it's hard to disparage a fellow owner of the company. Activists will typically encourage the company to take actions meant to benefit all stock holders (including management).

With his Lehman investment, Einhorn might have created a template for a new type of activist investor: the activist shorter. Einhorn made his case for why Lehman would drop through a series of speeches and media appearances. With a good argument and his own track record as credibility, people listened.

Shorts are unfairly vilified in the press for not being true owners and for wanting to drive down the stock. Yet, as Einhorn and another prominent shorter, RealMoney.com contributor Doug Kass, have pointed out: Are management, stock analysts or stockholders of a company who talk up a stock not guilty of the same bias that a short has when talking down a stock?

All long and short holders of stock deserve to make money if they can articulate a point of view before the fact and see it borne out. Einhorn simply had a better argument than Callan and the market sided with him. Lehman's stock dropped 16% between the time when Einhorn first made his public remarks on the bank's problems on May 22 and last Friday.

Lehman Shows Its Hand

Callan was forced into damage control. She immediately questioned Einhorn's credibility, reminding investors that he was a short-seller. "Mr. Einhorn cherry-picks certain specific items from our quarterly filing and takes them out of context and distorts them to relay a false impression of the firm's financial condition which suits him because of his short position in our stock. He also makes allegations that have no basis in fact with the same hope of achieving personal gain," said Lehman in a statement.

Yet, days later, by its actions, Lehman demonstrated that it was in exactly the position Einhorn said it was. On Monday, Lehman raised $6 billion -- higher than what market observers expected. The stock has dropped another 17% this week and is down 64% year to date.

Said Einhorn succinctly, "They just raised $6 billion that they said they didn't need to cover losses they said they didn't have."

Who was picking cherries?

Market observers didn't necessarily blame Callan for Lehman's poor investment decisions, but she lost all credibility for her serial back-tracking.

Callan still didn't lack confidence in announcing the capital raise on Monday, sold at 20% off the firm's book value. She jawboned, saying: "The discussions at this point aren't about our viability or the fact that we will be here or the fact that we have sufficient liquidity. I think we put that to bed on a number of different levels through our own actions."

Her words simply did not match up to the reality Lehman is facing and that's why she deserved to be removed. She committed the cardinal sin of overpromising and under-delivering -- repeatedly. Einhorn, by contrast, has walked softly and carried big returns for his investors.

Yet, neither Callan nor Gregory is completely responsible for the mess Lehman finds itself in. Where was Dick Fuld?

Why Should Fuld Get a Pass?

It's inconceivable that if such problems were facing Citi or Goldman (GS - Cramer's Take - Stockpickr) that Vikram Pandit or Lloyd Blankfein wouldn't be held to account. Why have analysts, investors and the press given Fuld a pass? Callan alone didn't sign off on those Alt-A loans earlier this year.

Dick Fuld clearly needs to step out of the shadows and demonstrate there is a path forward that Lehman investors can believe in. Most expect that Lehman will have to sell itself in whole or part in the coming months.

Fuld's greatest asset through this mess has been his mystique that he's been here before and can help the firm get through this again. You don't lead through abstention though.

Lehman shareholders need Fuld to step up -- or sell out.

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San Jose Mercury News: Ballots go out in Yahoo fight

$12 million to fight Icahn

By Elise AckermanMercury News

Article Launched: 06/10/2008 01:33:21 AM PDT

The polls opened Monday for Yahoo shareholders as the company mailed out ballots for the upcoming board election that could determine whether Yahoo remains an independent company.

The ballots, known as "proxy cards," were accompanied by yet another pair of caustic letters penned by Yahoo's leaders and activist investor Carl Icahn, who is campaigning to replace Yahoo's board and sell the company to Microsoft.

Yahoo and Icahn have been sparring publicly since Icahn nominated an alternative slate for Yahoo's nine-member board of directors last month. On Monday, Yahoo said it planned to spend up to $12 million fighting Icahn.

Company materials invited shareholders to vote "24 hours a day, 7 days a week" via a Web site, www.cesvote.com, a toll-free number or by regular mail. Anyone holding Yahoo shares as of the close of business on June 3 is eligible to vote.

A preliminary tally will be announced at the annual meeting Aug. 1. Final results will be published along with Yahoo's financial results for the quarter ending Sept. 30, 2008. IVS Associates, a voting services company, has been hired to act as inspector of elections, the company said.

In a letter to shareholders, Chief Executive Jerry Yang and board Chairman Roy Bostock urged investors to ignore Icahn. "Mr. Icahn has no credible plan except to sell the company to Microsoft - despite the fact that Microsoft has publicly indicated that it has no current interest in such a transaction," Yang and Bostock wrote.

Microsoft withdrew a bid to buy Yahoo for $33 a share May 3 after Yahoo rebuffed the offer.

And in case investors missed the point, the proxy materials instructed them "NOT TO SIGN OR RETURN ANY PROXY CARD SENT TO YOU BY THE ICAHN ENTITIES.

"Even if you have previously signed a proxy card sent by the Icahn Entities, you have the right to change your vote by using the enclosed WHITE proxy card," the material continued.

Icahn quickly fired back, accusing Bostock of reaping rich financial benefits from Yahoo and reiterating his opposition to a severance plan, adopted by Yahoo's board Feb. 12, that provided employees up to two years of salary and accelerated vesting of their stock options if there was "a change in control of the company" and they were fired without "cause" or quit for a "good reason."

In the proxy materials, Yahoo disclosed that "a change of control" would include a situation in which one person or a group acquired more than 40 percent of the company's outstanding shares or if five or more of Icahn's nominees were elected.

Eric Jackson, president of Ironfire Capital, said he and a group of 150 people controlling about 3.2 million shares, are voting for Icahn. "It's a situation where the current board, in my view, hasn't done anything to warrant re-election," he said.

Yahoo is currently facing shareholder lawsuits in California and Delaware over the board's handling of Microsoft's bid.

--------------------------------------------------------------------------------
Contact Elise Ackerman at eackerman@mercurynews.com or (408) 271-3774.

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Rochester Democrat & Chronicle: Rochester CEOs pull down tidy sums in 2007

Matthew Daneman • Staff writer • June 8, 2008

Anne M. Mulcahy runs a $17 billion company. She makes decisions that affect more than 7,600 workers in the Rochester area. And she gets paid a handsome sum to do all that.

The chief executive officer of Xerox Corp. made $14.6 million in 2007, according to a Democrat and Chronicle analysis of executive compensation at publicly traded companies with operations in the area.

Compensation includes not only cash in the form of salary and bonuses but also the value of perks and the estimated value of stock options.

Mulcahy was the most highly compensated CEO among those whose companies either have their headquarters in the Rochester area or have large work forces here.

But some other CEOs, of companies based elsewhere in the country and with relatively small Rochester-area staffs, did even better. For example, Exxon Mobil Corp. CEO Rex W. Tillerson had total compensation of $27.2 million in 2007, according to the analysis.

At Eastman Kodak Co., the area's largest publicly traded employer with 9,200 local workers, CEO Antonio M. Perez received $11.7 million in 2007.

In all, 51 of 72 executives in the Democrat and Chronicle analysis had compensation packages in excess of $1 million in 2007. The compensation data are available only for companies whose stock is sold to the public. The data come from documents filed annually with the U.S. Securities and Exchange Commission.

Typically, stock options or performance-based incentives make up much of a package. Sometimes, those awards wind up not having any value if the company's performance lags.

And for every Xerox, Kodak or Corning Inc., where the top executives all commanded at least $10 million in 2007, there is a Document Security Systems Inc. or First Niagara Financial Group or Performance Technologies Inc., at which the CEOs made less than $1 million.

Executive pay is a hot-button issue across the country because, studies have shown, the gap between what bosses make and what rank-and-file workers make is much larger than it used to be.

From the end of World War II through the 1970s, CEO pay grew gradually, according to a 2005 study by Harvard University and the Federal Reserve Board.

But between 1980 and 2000, the ratio of CEO-to-worker pay increased more than tenfold, from 42-to-1 to 525-to-1, according to a 2007 study by the liberal Institute for Policy Studies in Washington, D.C., and United for a Fair Economy, a Boston-based group that tracks CEO compensation.

Since 2000, the gap has narrowed slightly, the study found.

Consulting firm Mercer LLC's annual survey found that, on average, CEO compensation actually declined in 2007, with executives at the largest companies taking the biggest hits as financial performance also declined.

Unintended effect

New SEC requirements in the 1990s forcing companies to detail what they pay executives were intended to slow the growth rate of compensation by shining more light on the subject, said Eric Jackson, president of Florida-based activist investment firm Ironfire Capital. Instead, that openness might have helped push the growth. "The unintended effect was that it sort of became this constant escalating match of who is going to be paid the most," Jackson said.

Prompted by shareholders, a small number of companies this year granted those investors a say in executive pay packages. Insurer Aflac Inc. of Columbus, Ga., last month became the first major American company to give shareholders a vote on compensation.

Apple Inc. in Cupertino, Calif., and printer company Lexmark International Inc. in Lexington, Ky., gave investors an advisory say, though not a direct vote.

Similar proposals were shot down this year at a number of companies, such as Citigroup Inc. and Morgan Stanley, both New York City-based financial giants.

The House of Representatives in 2007 passed the Shareholder Vote on Executive Compensation Act, which would require that company stockholders get an advisory vote on executive compensation. Sens. Barack Obama, D-Ill., and Hillary Clinton, D-N.Y., have introduced similar legislation in the Senate in the past year.

With CEO compensation averaging nearly $13 million at Fortune 500 companies, critics abound.

"Is anybody worth that kind of money?" asked Gary Bonadonna, manager of the Rochester Regional Joint Board of UNITE-HERE, which represents about 1,400 tradespeople working at Xerox's Webster campus. "I don't think so."

But given what Xerox's peers pay their executives, Bonadonna said, "I don't think (Xerox) is out of whack. I don't have an issue with it. If they were attacking our wages, it'd be a different story."

Xerox retirees upset about the cuts the company has made in health care benefits get particularly fired up each spring when Xerox issues a proxy statement that details, among other things, what the company's top bosses made, said Dave Ferren, vice chairman of the Penfield-based Association of Retired Xerox Employees.

Executives are paid so much because they know a lot and do a lot, said James A. Brickley, Gleason Professor of Business Administration at the University of Rochester and an expert on corporate governance.

"I'm sure you can find some abuses in CEO pay," Brickley said. But running a large company is such a specialized job, he said, that handsome pay packages are necessary to attract and retain top talent.

Pointing to privately held companies that have hired CEOs from publicly traded companies, such as General Electric Co. executive David Calhoun leaving in 2006 to head Dutch market research firm VNU for a reported $100 million, Brickley said the private firms with hands-on ownership "are not going to go out and overpay a CEO's salary."

Compensation for heads of similar private and public manufacturing companies, for example, will usually be comparable, said Peter Oppermann, senior executive compensation consultant with Mercer LLC in New York City.

Oppermann said the increased public attention paid to executive compensation hasn't curbed the growth of pay packages but "has ensured that companies have paid for performance."

Brickley added: "There's a lot of focus and argument over CEO pay, but in reality that represents an incredibly small fraction of the overall value of these companies. ... So the pay is over the market rate. Is that as big an issue as not getting the right person in there?"

Set by boards

Executive pay can be a touchy subject for many companies. Major employers including Xerox and Constellation Brands Inc. declined to discuss the issue beyond pointing to their proxy statements.

Ultimately, executive compensation is set by companies' boards of directors. And typically those boards adopt packages that are designed to attract and motivate qualified executives and that are based on an assessment of corporate and individual performance. Companies also look to peers to help determine what they should be paying.

Many of those highly paid top executives are among a company's major shareholders. Patrick White and Peter Ettinger, CEO and president, respectively, of Document Security Systems, combined own more than 8 percent of the Rochester-based company.

At Perinton-based telecommunications company PAETEC Holding Corp., CEO Arunas Chesonis owns 8.3 million shares, or almost 6 percent of the total. And Kodak's Perez owns 1.2 million shares, though that amounts to less than 0.5 percent of the common stock, and has access to 1 million more through options.

Compared to companies around the globe, UR's Brickley said, American CEOs are more highly paid. But that can make for an apples-and-oranges comparison because "some (foreign) companies ... deal in less complex environments."

And as markets around the globe become more integrated, Brickley said, "the pay packages are tending to converge more."

MDANEMAN@DemocratandChronicle.com

Includes research by staff writer Jeremiah Curtin.

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MarketWatch: Can Icahn's 'theatrics' sway Yahoo investors?

Billionaire activist outlines plans for Web portal but may have limited appeal

By John Letzing, MarketWatch
Last update: 5:17 p.m. EDT June 6, 2008


SAN FRANCISCO (MarketWatch) -- Following two vitriolic letters to Yahoo Inc. detailing plans to oust its board and chief executive while putting the company at the mercy of Microsoft Corp. in resumed merger talks, the appeal of Carl Icahn's proxy bid is not clear.

Icahn started his day Friday by sending a second highly critical note to Yahoo's board, suggesting that it and Chief Executive Jerry Yang should step aside as the Web portal offers itself to Microsoft for exactly $34.375 a share. He also expressed skepticism about Yahoo's efforts to reach an alternative partnership with the software giant. See related story.

Later in the day, Icahn followed up by officially filing his preliminary proxy statement seeking to nominate his own slate of directors at the Yahoo's annual meeting, scheduled for Aug. 1. Icahn had first announced his intention to pursue a proxy bid for control of Yahoo last month.

Shares of Yahoo rose slightly to $26.44 by Friday's closing bell, while shares of Microsoft fell more than 2% to $27.49.

It remains to be seen whether Icahn's vehemence will sway the bulk of Yahoo investors to his cause.

Other activist investors, including T. Boone Pickens and John Paulson, already have joined forces with Icahn by increasing their stakes in Yahoo following the announcement of his proxy bid. A fund manager with Legg Mason Inc., a major and long-term Yahoo shareholder, said last week that he's open to the Icahn effort, though he'd have to see how the proxy fight shapes up. See related story.

But Icahn's desire to position himself as a broker for new merger talks between Yahoo and Microsoft may undercut by the fact that the companies are already engaged in negotiations.

"Icahn's source of bargaining power is if they're not willing to talk, or if they're in massive disagreement," said Collins Stewart analyst Sandeep Aggarwal. "But they are talking to each other."

Talks in progress

Yahoo itself pointedly has mentioned the fact that it's in talks with Microsoft, noting that both companies are now more inclined to seek out partnerships rather than a merger.

But it's unclear how seriously Yahoo is taking the current talks, according to Jefferies & Co. analyst Youssef Squali. "The heart of the issue is whether Yahoo management is negotiating with Microsoft in good faith or not," he said.

For his part, Icahn said he doubts such an arrangement will bring Yahoo's stock to the same value offered by the Microsoft buyout offer.

"I intend to ask our new board to inform Microsoft that unless any alternative transaction can insure a $33 or higher stock price (of which I am skeptical), all talks of alternative transactions are over," the investor wrote in his letter Friday.

Instead, Icahn thinks that Yahoo should publicly offer itself to Microsoft for $34.375 a share -- a small premium to the $33 bid price Microsoft offered before pulling its bid last month. If a deal cannot be reached, Icahn said Yahoo should enter some sort of search agreement with Google Inc. See full story.

Roger Kay, an analyst with Endpoint Technologies Associates, cautioned that Yahoo investors shouldn't get hung up on Icahn's bluster. "He oversimplifies, he's always done this," he said.
"Even with all the theatrics, I think shareholders get helped, because he has skin in the game and he wants to get out."

Bitter shareholders

Squali commented that Icahn likely isn't losing any favor by issuing nasty missives. "I do not believe that Icahn's letters are turning other shareholders against him. I think it actually may be the opposite."

The analyst said that's because many shareholders are sufficiently embittered at this point to be able to look past any perceived shortcomings in Icahn's approach.

In a column posted on TheStreet.com Wednesday, activist Yahoo shareholder Eric Jackson wrote that he doesn't buy the notion that Icahn and his slate have to prove anything. Jackson, whose stake is relatively small, has been a particularly vocal about his desire for a change of direction for the struggling Web portal.

"As far as I'm concerned, after Yahoo's last four years of slipped deadlines, missed opportunities and chronic market underperformance, the burden of proof should lie on the shoulders of the incumbent board," wrote Jackson, who did not respond to a request for comment.

Another seemingly discordant note in Icahn's letter Friday was the suggestion that should a deal with Microsoft fail to materialize, Yahoo should pursue a vaguely defined partnership with Google as an alternative.

Icahn previously has criticized Yahoo's attempt to reach a deal with Google, though that was widely seen as a means to preempt a Microsoft takeover, not as a plan B to a takeover. Such a deal would likely see Yahoo outsourcing a portion of its search-advertising business to its rival, while many analysts suggest that the company would lose merit in the eyes of Google if the
Microsoft bid gets conclusively dropped.

"Working with Google and selling to Microsoft seems to me like two separate things," Aggarwal of Collins Stewart said.

In addition, some have wondered whether the nasty back and forth between Icahn and Yahoo may actually work to seal a deal at a value lower than what Yahoo shareholders might want.

"Microsoft is probably quite happy to letting Icahn 'soften up' Yahoo's management before it swoops in once again," Squali wrote to clients Friday.

John Letzing is a MarketWatch reporter based in San Francisco.

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TheStreet.com: The Activist Investor: Four Ways Icahn Can Beat Yahoo!

From TheStreet.com:

By Eric Jackson

06/04/08 - 09:12 AM EDT

Yesterday, Carl Icahn amped up the rhetoric in his battle to take control of Yahoo!'s(YHOO - Cramer's Take - Stockpickr) board, by calling for CEO Jerry Yang's head.

"I am amazed at the lengths that Jerry Yang and the board went to entrench themselves in this situation," said Icahn in the Wall Street Journal Tuesday. He added that he thought it was unlikely another bid by Microsoft(MSFT - Cramer's Take - Stockpickr) for Yahoo! would come as long as Yang was in charge.

So now that Yahoo! finally set the date for its annual meeting (Friday, Aug. 1 at the Fairmont in San Jose), the stage is set for 8 weeks of proxy fight fun.

Henry Blodget thinks Icahn's got a victory in the bag, saying he already has support from 30%+ of Yahoo! stockholders. He points to assumed support from Capital Research (due to previously critical comments made by Gordy Crawford of Yahoo!'s "so-called" independent board) and Legg Mason (LM - Cramer's Take - Stockpickr) (for similar reasons) and confirmed support from hedge fund heavyweights T. Boone Pickens, John Paulson, and Dan Loeb.

The problem with this math is that Gordy Crawford doesn't vote Capital Research's 16% Yahoo! stake himself. He oversees 6 of that 16%. The balance is overseen by Capital World Investors, which is led by Mark Casey in San Francisco. Cap World will vote for the path that will lead to the highest price per share. Legg Mason and many other larger institutional holders will also take a "show me" attitude to why Icahn's team will get them more money over the existing board.

I disagree with the "show me" line of thought and support Icahn's slate. As far as I'm concerned, after Yahoo!'s last four year's of slipped deadlines, missed opportunities and chronic market under-performance, the burden of proof should lie on the shoulders of the incumbent board and not an activist investor's slate that easily passes a credibility sniff test.

Icahn can win this proxy fight. Here's four steps he should take to ensure it:

1. Recount the Board's Many Mistakes: Icahn's biggest advantage in this battle is the horrible track record of Yahoo!'s board. It would be different if the botched Microsoft negotiations were a one-off. But Yahoo! has been in serious decline for four years. They've overseen a zero percent return for the shareholders over that time. They also monitored Yahoo! taking a pass on buying Google, Facebook, YouTube, and DoubleClick. The company's foray into becoming a mini-Hollywood studio was an aimless walk in the desert for years. And they also watched the company slowly integrate Overture's pioneering paid search technology, allowing Google to surge ahead of them for good.

Supporters of Yahoo!'s board say that they have more relevant Internet experience than Icahn's slate. What good is Internet experience if you've presided over so many mistakes for so long? What good is having supposed deal-makers like Chairman Roy Bostock and others on this board if they haven't been able to consummate a deal?

2. Point out Jerry Yang and the Management Team as In Over Their Heads and Co-Creators of the Problems: Jerry Yang and President, Sue Decker, appeared last week at the All Things D Conference last week in Carlsbad, Calif., looking solemn and lacking any energy or clarity in explaining what Yahoo! does and what it wants to be assuming it stays independent.
This management team had more than seven months after Terry Semel resigned and before Microsoft launched its offer to set Yahoo! on a new course. They didn't do it, choosing instead to pretty much stay the course Terry had been on. In retrospect, it's not surprising, as Yang, Decker, David Filo, Brad Garlinghouse, and Jeff Weiner are long-timers.

How can this team be entrusted to fix Yahoo!, when they were the ones who broke Yahoo!?

3. Raise the Issue of Director and Executive Compensation: Executive Compensation has dogged Yahoo! as an issue for years. Shareholder ire on this was typically directed at Terry Semel and the Compensation Committee who paid him. Yahoo! was handing out top decile pay for market under-performance in the last years of his tenure.

You might have thought that the issue would die when Semel agreed to step down last year, after each of the Comp Committee directors (Bostock, Ron Burkle, and Art Kern) received 35% of shareholders votes cast against their re-election.

A quick comparison of Yahoo!'s newly released preliminary proxy and Google's from several months ago shows that Yahoo!'s independent directors were paid, on average, nearly twice as much in total compensation last year as Google's independent directors ($497,812 vs. $260,854).

All of this compensation was paid out in stock grants and stock options, yet these lavish packages have an economic cost to current stockholders. This isn't play money. It's painful to Yahoo! shareholders to think that these board members were paid $4.4 million last year collectively and that led to these kinds of results.

Yahoo! directors and officers continue to be addicted to excessive stock compensation.

4. Prove You Can Get a Higher Price for Yahoo! than its Foot-Dragging and Feigned Indifferent Board: This is the biggest nut that Icahn must crack in the eyes of key swing voters. He is unlikely to get public support from Microsoft in advance of the Aug. 1 meeting. So, on his own, he will have to articulate how he can get more for shareholders than the other guys. Without a firm offer from Microsoft in hand, some shareholders will simply not believe Carl.

However, enough shareholders can and will support Icahn if he points to how he's knocked heads before to get a better deal done (BEA and Oracle being the most recent and relevant example).

He can also always turn this critique around to ask why the existing board has persistently turned its nose up at a potential deal with Microsoft (according to recent unsealed documents coming out of the shareholder Delaware Chancery Court case against Yahoo!).

There are many reasons why Icahn might not want to win this proxy contest.

Thanks to Yahoo!'s Feb. 12 approval of poison pill-like "Change of Control" provisions, Icahn himself could trigger these if he wins five or more board seats.

The new leadership of Yahoo! would be hamstrung from changing anyone's job titles without expensive severance, benefits, accelerated vesting, and other services kicking in. There would also be rapid departure of the most senior and expensive executives.

It's not right, but this scenario will factor into to Capital World's and Legg's thought process as they weigh how to vote their shares.

There's a clear solution for all parties involved: get a deal with Microsoft done before Aug. 1.

Yahoo!'s directors don't want further embarrassment to mar their reputations. Icahn and other Yahoo! shareholders can get back to a full and fair price for their shares. And Microsoft can get out of their two-year Yahoo! purgatory (since they first privately floated the idea of a deal in mid-2006 to Yahoo!) and get on with beefing up their anemic Online Services Division and protecting their core Desktop cash cow with Web services and advertising revenue.

[Disclosure: At the time of publication, Jackson was long Yahoo!]

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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Tampa Bay Business Journal: Warning lights shine as railroad giant CSX engages in proxy fight

Friday, May 23, 2008

Tampa Bay Business Journal - by Tony Quesada Jacksonville Business Journal Staff Writer

JACKSONVILLE -- The campaign rhetoric is getting more biting, and the expenses are reaching tens of millions of dollars as the time for voting draws near.

The deadline for those with a stake in CSX Corp. to decide the class 1 railroad's fate is June 25, the day of its rescheduled annual meeting in New Orleans.

If the activist hedge funds The Children's Investment Fund Management LLP and 3G Capital Partners Ltd. succeed in getting five members on CSX's 12-member board and gaining approval for various shareholder proposals, it will likely change the company's culture. The hedge funds are seeking greater shareholder ability to call special meetings for any reason and to nullify bylaws changes made recently by the board.

CSX (NYSE: CSX) warns TCI/3G's ideas for maximizing shareholder value threaten the company's long-term health.

CSX and TCI/3G have released proxy filings almost daily in advance of the railroad's annual meeting. Each carefully crafted and legally reviewed filing is geared toward convincing shareholders that the company is or isn't on track and that each side's plans will secure CSX's future while the others will derail it.

"In many ways a proxy contest is like a political campaign," said Andrew Siegel, an investor relations consultant with Joele Frank Wilkinson Brimmer Katcher, a nationally known firm retained by CSX.

Whoever prevails, the proxy fight over the Fortune 500 company will be among the most expensive involving a railroad. CSX had spent about $10 million related to the proxy fight -- expenses not normally incurred for a typical annual shareholder meeting -- and expects to spend about $22 million total before it's done, according to its proxy statement. That includes up to $1.25 million being paid to Innisfree M&A Inc. as a proxy solicitation consultant, but it doesn't include the salaries and wages of employees who are working on the proxy fight.

TCI/3G's proxy bill also is substantial. It has retained D.F. King & Co. as its proxy solicitor for up $1.5 million. It estimates it will spend $9 million for services such as legal, accounting, public relations, advertising, printing and transportation. As of April 28, it had spent $3.5 million.
Filings flowing

In every year since 1995, CSX has made one proxy filing before its annual meeting; in 2006, the company filed a preliminary proxy statement 13 days before the final one. This year -- actually beginning in December with proxy soliciting materials filed by TCI/3G -- there have been 43 proxy filings by the two sides combined as of May 20.

Keeping the filings flowing, even at the risk of inducing proxy fatigue among shareholders, is typical, said Eric Jackson, president of Naples-based activist investment fund IronFire Capital LLC. "Most shareholders tend to mail in the last thing they receive."

Besides making multiple filings, both sides are counting on their proxy solicitation consultants to help them press their messages with large proxy holders.

Many institutional shareholders, because they hold many companies' stock and lack the resources to research every proxy contest in a given year, rely on proxy advisory companies to help them decide.

Under the shadow of litigation

CSX filed a lawsuit in the U.S. District Court for the Southern District of New York alleging violations of federal securities laws. The lawsuit alleges TCI and 3G have employed swap agreements to evade certain filing requirements and that TCI's disclosures regarding its 11.5 percent swap position in CSX shares are materially misleading because they don't disclose that swap counterparties intend to vote their shares with TCI.

CSX cited concerns for voting integrity being undermined by alleged violations as a reason for rescheduling its annual shareholder meeting from early May to June 25.

TCI and 3G responded with a countersuit accusing CSX of misleading shareholders and violating its corporate insider trading policy. Alleged violations include setting "spring-loaded" stock grants for "CSX insiders" while knowing material nonpublic information.

A bench trial was scheduled to begin May 21, and a decision could be rendered before CSX's annual meeting. The outcome could have implications on future reporting requirements, said Keith Gottfried of Blank Rome LLP in Washington.

Besides rescheduling its annual meeting, CSX is holding it in a rail yard in New Orleans, a departure from the usual hotel conference space. Company spokesman Garrick Francis said CSX is looking to showcase the work that's been done there recovering from Katrina's damage.

tquesada@bizjournals.com 265-2220

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Targeting Barnwell Industries

By Eric Jackson

June 2, 2008

Barnwell Industries (BRN) should get an award for having the most moving parts for such a relatively small business.

It is a $100 million company with natural gas holdings in Western Canada, a land investment business on the Big Island of Hawaii, and water contract drilling business. It’s based in Honolulu and employs 65 people.

If that’s not a hodge-podge company, I don’t know what is. Yet, despite that mis-mash of businesses, this is an attractive activist investment from a number of perspectives. I’ve built up a position in it in the last quarter and just recently launched a “friendly” activist campaign targeting the company to unlock shareholder value.

Its diverse set of businesses has confused investors over the years, but, at heart, Barnwell is a natural gas play (95% of its oil and gas revenues are from natural gas). Seventy-three percent of the company’s $47MM in revenues last year came from the gas business – while only 13% came from the water contract drilling business and 12% from the land investment business.

Barnwell’s productive wells dropped in 2007 versus 2006 and its revenues and operating income took a hit as a result. The stock was cut in half from $24 to $12. Further pressuring the stock was a large holder (Mercury Real Estate Advisors LLC) cutting its position in the company. A couple of months ago, the stock hit $8 – just above its book value per share of $6.87. Since then though, news that Barnwell’s productive wells have staged a comeback along with first quarter revenues has helped the stock snap back nicely closing just under $14 last Friday.

Natural gas prices have moved up sharply in the past year. The price per MMBtu is at almost $12 today, versus $5 – 6 a couple of years ago. As a result, pure-play natural gas companies like Chesapeake Energy (CHK) and Encana (ECA) are up 40% and 33% respectively year to date. Barnwell, by contrast, is only up 13%.

Barnwell has been around since the 50s, but it only recently got into the land investment business. It has taken some of the ample cash flow from the natural gas operations and bought up land in and around the Four Seasons Resort on the Kona-Kohala coast of the Big Island of Hawaii. The Four Seasons Hualalai is simply stunning and the surrounding area has fast become a magnet for second homes of Silicon Valley entrepreneurs and Hollywood celebrities. Even though we are going through a soft period for real estate in general, this location remains highly desirable for its target rich-and-famous audience and this will only increase as it gets built out. Barnwell just received a $2MM option payment for developing the land around the Four Seasons resort, with another payment due later this year.

A final attractive aspect of the company is that 5 insiders have recently purchased shares in December and January, when the stock price was around $9 – 12. They clearly see something attractive in Barnwell’s pricing. Who can blame them when you see its Enterprise Value – EBITDA ratio for the last 12 months at 5, while Encana’s is at 9 and Chesapeake’s is at 10.3?

Barnwell’s board and management clearly have to take responsibility for the low multiple for the company. That’s why I recently launched an activist campaign targeting them. In addition to simply writing a letter to the current CEO and COO (Morton Kinzler and his son, Alexander), I’ve put my draft points of a plan in “wiki” form on the Web so that other investors can edit and comment on the plan (it’s located at http://shareowneractivism.wikia.com/). I’m a big believer in the idea that the community is smarter than any one individual. Hopefully, other Barnwell investors will be inspired to get involved and improve on these points below for how the company can better unlock shareholder value.

Here are the prescriptions for Barnwell:

Simplify Corporate Structure

Barnwell’s three businesses (oil and gas, contract water drilling, and real estate/land investment) have no synergy. A simpler corporate structure would better allow the market to bid up the underlying value of the oil and gas business to reflect the doubling of the commodity pricing in the last year. Barnwell should sell its water drilling business, which is small and shrinking in revenues and earnings. If the company received 1x its revenues, its cash reserves would nearly double to $14MM, allowing a stock buyback and/or upping the dividend. Selling or spinning off the real estate business might also make sense to focus Barnwell as a small natural gas pure-play.

Reduce SG&A Costs

Over the last year, SG&A costs have gone up 50% to $3.2MM. Yet, revenues and gross profit only increased 28% and 27% respectively over that same period. Barnwell is growing its costs at twice the rate of its sales and profits. As they say in Business School, that’s not sustainable. It’s also not acceptable for a 65 person company. Selling off the water drilling business, which contributes little profit, is a step in the right direction to improving things here, but much more work is needed.

Do a Stock Buyback

The company did agree to pay out a 5 cent dividend recently. Hopefully, that will attract a new group of investors to the stock. However, a stock buyback is both prudent, given that the cash position has increased over the last year and the strength of gas and land development businesses, and would make the company more attractive by lowering further its price-earnings ratio.

Bring in Some New Blood to the Board

Barnwell’s board is large and long-tenured. RiskMetrics awarded Barnwell a Corporate Governance Quotient (CGQ) score that is lower than 70% of other energy companies. The board’s composition is part of the problem. Seven of the 11 directors are older than 64. Four of the directors have been on the board for more than a decade.

It makes sense to change the composition of the board. Some of the longstanding directors should step down now to make way for some new blood, but some of them shouldn’t be replaced. An 11-member board is too large for a $100MM company. Having fewer than 10 directors would lead to faster meetings with more participation and debate.

Better Align Executive Compensation with Performance

Executive compensation policy has also likely contributed to Barnwell’s lower CGQ score. Last year, the CEO was paid $1.2MM. He explained this by pointing to how the company’s profits increased by 200% that year, yet the stock price dropped in half over that same time.

Barnwell needs to better spell out its executive compensation policy and ensure that it links in part to stock performance.

I also am not a fan of stock options. I would much rather see Barnwell with a policy that encourages both officers and directors to buy stock on the open market with low interest loans from the company. In my experience, this creates much more of a “skin in the game” mentality than options, which benefits corporate performance.

Barnwell Industries is an off-the-beaten path company and clearly there’s risk here that management and the board do not perform and take a status quo approach. In such a small company, with so many different kinds of businesses as moving parts, that’s a big concern.

But, this is a great candidate for activism. There is fundamental strength in the core natural gas and ultra-luxury Hawaiian land holdings, which can defy recession. With some improvements in the areas outlined above, along with continued strong quarterly performance, this stock can move quickly – as it has already almost doubled since mid-March.

It’s also nice to know that the father and son who lead the company still own 20%. They were both recent buyers of the stock in the open market. They’re incented to do the right thing for stockholders and hopefully will be open to constructive dialog that activism brings.

[Disclosure: At the time of publication, Jackson was long Barnwell (BRN)]

Eric Jackson is founder and president of Ironfire Capital, LLC, and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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