Monday, May 19, 2008

NPR Radio: Investor Icahn Urges Yahoo-Microsoft Merger

Eric Jackson interviewed by NPR's Wendy Kaufman from May 15th.

Morning Edition, May 15, 2008 · After Microsoft withdrew its bid for Yahoo, it's been reported that billionaire Carl Icahn bought 50 million shares of Yahoo. Apparently, he wants to see the two companies merge, and he has even launched a proxy contest to get rid of Yahoo's entire board of directors.

Click here to listen to the report.

Sphere: Related Content The Activist Investor: How Peanut Butter Lured Icahn to Yahoo!

Cross-posted from the May 19th

By Eric Jackson

05/19/08 - 06:59 AM EDT
LM MOT (Stocks Under $10 PICK) MSFT YHOO

They say that a butterfly flapping its wings in Asia can start a hurricane in West Africa.
Hurricane Carl arrived on the doorsteps of Yahoo!'s(YHOO - Cramer's Take - Stockpickr) offices Thursday, complete with his slate of 10 nominees to unseat Yahoo!'s entire board at the July 3 annual meeting. (And Icahn's entrance is no longer the latest twist in the Microhoo saga, as Microsoft approached Yahoo! with a new proposal on Sunday.)

The butterfly who started the chain of events that led to this is Brad Garlinghouse, a senior Yahoo! executive who penned the "Peanut Butter Manifesto" in November 2006.
Someone, not Brad himself, leaked the memo to Kevin Delaney of the Wall Street Journal and it put all of Yahoo!'s dirty laundry on the front page.

Garlinghouse wrote this memo (in the same vein as Jerry Maguire) which he sent internally to rally the troops. He criticized the company for spreading itself too thin and urged it to focus more: "We want to do everything and be everything - to everyone."

A few weeks prior to this memo's debut, I wrote a blog post criticizing Terry Semel for not be responsible for Yahoo!'s post-bubble turnaround, but as someone who was more along for the ride. Anemic traffic to my blog suddenly shot up. I also saw a wave of comments on the post from current or former Yahoo! employees agreeing with me.

The Peanut Butter memo seemed to be a cry for help. I expected that some activist hedge fund, like Icahn, Jana Partners, or Relational Investors, would be interested in Yahoo! because of its traffic, brand, and great properties overseas combined with an ineffective board and management.

They never came.

Next Yahoo! announced a December 2006 reorganization to show it was as nimble as ever. It was cosmetic. Meanwhile people kept pouring in their comments to my blog postings on what was wrong with Yahoo!, often referring to the Peanut Butter Manifesto as a final straw and suggesting action needed to be taken. I was inspired to start my own activism against the Internet giant.

In January 2007, I launched an Internet-based activist campaign encouraging frustrated Yahoo! shareholders to pool their shares with me in order to speak with one voice and push the company for significant changes in its board and management.

People immediately started "pledging" their shares towards our group. By last year's annual meeting, we had 100 shareholders with 2.1 million shares of Yahoo! stock. We ended up getting a lot of press and spoke to many large institutional holders encouraging them to vote against a significant number of the directors at the meeting. CEO Terry Semel stepped down 6 days after the vote.

Although most shareholders were pleased to have Jerry Yang take over as CEO last summer, he was slow out of the blocks and basically followed the path Semel had been going down. At his first analysts' call last July, Yang announced he needed 90 days to study the company from top to bottom before making changes.

Three months passed without acknowledgement. No news was bad news and Wall Street headed for the exits. Yahoo!'s stock declined from $34 in October to $19 in January of this year.
It took Microsoft's bid on February 1st to jolt Jerry to life. Suddenly talks were happening with Google, AOL, and News Corp. Had any of these discussions been happening sooner, Yahoo!'s stock would likely never have dropped to the levels which have now put in play.

It's no surprise Icahn showed up to this party. As Kara Swisher said, he smelled the blood in the water. The disappointment of shareholders was nearly universal following the breakdown in talks with Microsoft 2 weeks ago.

The thing that stuck in the craw of most Yahoo! investors wasn't the shock of Microsoft's abrupt termination of the talks two weeks ago, it was a New York Times article. The day after talks broke off, the Times reported that: "People close to Yahoo said that Mr. Yang and his team greeted Microsoft's decision as a victory. High-fives were exchanged Saturday afternoon when they learned Microsoft was backing down."

People close to Yahoo! have sworn to me that this absolutely never happened. But we're not talking about a rumor reported on Joe's Tech Blog here; this is the New York Times. I've spoken to Times reporter Miguel Helft about this detail and he stands by the paper's reporting. Be prepared to hear a lot about high-fives and peanut butter in the next few weeks.

Icahn will get a lot of support from the retail investors and the recent hedge funds and merger/arbs who have piled in to this stock in the past 10 days. John Paulson has already thrown his 50 million Yahoo! shares behind the dissidents.

Icahn's greatest challenge is going to be convincing some of the larger, more skeptical shareholders like Bill Miller of Legg Mason(LM - Cramer's Take - Stockpickr) and the other larger institutional players that he will get them a better price and not weaken Yahoo!'s negotiating position with Microsoft(MSFT - Cramer's Take - Stockpickr). Some have also said he doesn't have enough people with Internet experience on his slate.

In Icahn's first battle with Motorola(MOT - Cramer's Take - Stockpickr) last year, although he got support from several investors (including Brian Posner, who used to run ClearBridge Advisors and is now one of Icahn's nominees for the Yahoo! board), it wasn't enough to get elected. He's got a more enraged shareholder base this time around with Yahoo!, and he's running against a board that's delivered a big fat goose-egg in shareholder returns for the past 4 years. However, he's got to deliver a compelling case for how he and his team will create more shareholder value with or without Microsoft. He can't just run a campaign on the mistakes of the existing board (although there are many).

As a shareholder, I will be taking the next two weeks to listen to the 20 people up for election for the 10 seats around the board table. May the best group with the best plan to maximize Yahoo!'s price per share win.

What happens next? Yahoo!'s board knows that it's likely to be convicted on a charge of aggravated assault to its shareholders for the last 4 years. They will likely try to cut a deal with Icahn. Although I like fireworks, it wouldn't surprise me if discussions get restarted with Microsoft and a friendly deal gets reached prior to the Yahoo! annual meeting on July 3.

That would be less that two years after Brad Garlinghouse put his massive passion for and frustration with Yahoo! to paper. In this Internet age, ideas can inspire and spread like wildfire. Garlinghouse's memo was supposed to help Yahoo! save itself from the inside-out. Instead, his words, which have led to Carl Icahn's arrival, put the wheels in motion to save itself from the outside-in.

At the time of publication, Jackson was long YHOO and MOT.

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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Sunday, May 18, 2008

Half-Steps Aren't Enough: Icahn Needs to Step on the Gas

Today's news that Yahoo! and Microsoft are talking again tells me one thing: both sides need this deal.

Microsoft's walking away was a bluff. Despite some of their shareholders saying the deal was unwise, the logic they used internally to decide to launch the largest ever acquisition in their history is still valid. They need this deal to bolster their weak sister online division, and also strengthen them for the next wave of their desktop business which will inevitably move to software-as-a-service (which will need web services and ad revenues which this deal is all about).

You don't talk about a friendly deal with Yahoo! a year ago, then -- more recently -- convince your board to do a hostile offer, and then, after taking a little heat from shareholders, walk away. If they did walk away, they should really call a spade a spade and shut down their online group which has been a sinkhole for a decade.

Yahoo! is just as desperate for a deal. This board knows shareholders are out for blood. It's less than seven weeks until their annual meeting and all their directors (including a co-founder) have a legitimate shot of being thrown to the curb.

Icahn's slate already has a sizable number of supporters (including Paulson already and likely Dan Loeb soon) and this will grow over the coming weeks, as I imagine that several larger institutions, ISS/RiskMetrics and many pension funds throw their support behind a deal. This board is finally (justifiably) fighting for their lives and will do everything to head off Icahn.

However, Yahoo! shareholders and Carl Icahn need to step on the gas. A partial deal with Microsoft is not as preferable an outcome as a full-and-fair offer for all of Yahoo! It's a half-step that Yahoo! might embrace as a way of retaining independence and Microsoft might embrace as a foothold to the eventual endgame.

But the endgame is the endgame. Microsoft will buy Yahoo!

Will Microsoft and its shareholders be better off dragging this out for 2 more years before a deal is consummated and the clock finally starts on regulatory approval? Does that really help them and penalize Google?

Will Yahoo!'s shareholders be better off with the current board and management left to perform as they have performed for the last 4 years?

A deal should get done before the Yahoo! annual meeting (otherwise known as its Shareholders' Independence Day), but it should be for the entire company.

Icahn needs to start talking to Steve Ballmer and Chris Liddell and make it happen for the highest price possible.

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NY Post: Search and Destroy


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

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

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

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

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

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

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

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

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

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Saturday, May 17, 2008

Dow Jones: Microsoft's Silence Isn't Golden To Some Yahoo Shareholders

May 16, 2008: 05:44 PM EST

SAN FRANCISCO -(Dow Jones)- As Carl Icahn's proxy fight has raised the noise surrounding Yahoo Inc. (YHOO), the silence from the company's erstwhile suitor, Microsoft Corp. (MSFT), is leaving Wall Street perplexed.

Observers are left to make educated guesses about Microsoft's stance, which could be the deciding salvo in the proxy fight. Three theories seem to be emerging: first, Microsoft remains interested in Yahoo, and may even have covertly signaled as much to Icahn, but is remaining silent as a negotiating tactic; second, the company has actually moved on, as it has publicly stated; and, third, the company remains undecided.

Microsoft's response is no minor statement. It could decide the outcome of the proposed $47 billion merger, as well as the future of each company's leaders, and transform the online advertising world.

For three months, Microsoft argued that acquiring Yahoo was key to its future growth strategy. Then, when deal negotiations got arduous, it turned around and showed the Internet company its hand.

The problem now is Wall Street can't tell if Microsoft wants to wave hello or goodbye.
Microsoft has declined to comment or get involved as Yahoo shareholders, along with Icahn, publicly questioned the Internet company's handling of the negotiations. Microsoft has maintained its public stance that it has moved on from Yahoo. Some, though, don't believe the software giant could walk away that easily from a company it had been pursuing for more than a year.

As a result, observers are left to make educated - sometimes well-argued - guesses based on the few facts available.

For example, analysts at Goldman Sachs aren't entirely convinced that Microsoft isn't interested.

"We believe that there should be substantial capex, cost, and revenue benefits to uniting Yahoo's and Microsoft's search businesses, and that it is in Microsoft's interests to dismiss talk of an acquisition, even if an acquisition remains its ultimate ambition," analyst James Mitchell wrote.

Andy Miedler, a senior technology analyst with Edward Jones, agrees that buying Yahoo, which would significantly bulk up Microsoft's hitherto underweight Internet advertising business, is too important to Microsoft's future plan to turn down.

"Microsoft's core businesses are going great but, down the road, it needs a growth pillar," Miedler said. "There are other alternatives, but none would bring the audience size Yahoo would provide." Edward Jones doesn't hold shares in either Microsoft or Yahoo.

It has also been argued that Icahn wouldn't have pursued a fight with Yahoo's board without some type of implicit acknowledgement of Microsoft's interest. Supporters of that argument point to the overlap of two people between Microsoft's reported board slate, which it never publicly revealed and has since disbanded, with Icahn's proposed slate.

This theory appears to have the support of traders, who have kept Yahoo's share price in the high $20s, where it has frequently resided since Microsoft made its offer Feb. 1. Yahoo shares closed Friday at $27.66.

The second possibility is that, as it claims, Microsoft really has turned the page and is pursuing different strategies. Henry Blodget, a former Wall Street analyst turned technology blogger, said, "We suspect that Microsoft really has 'moved on,' that - gradually, over the course of three months, (Chief Executive) Steve Ballmer eventually decided that buying Yahoo would be a mistake."

Microsoft may be considering the significant integration risk in the acquisition - especially after a lengthy takeover battle - and the possibility of rebellion from shareholders and staff who opposed the approach.

Shortly before Microsoft abandoned the deal, The Wall Street Journal reported that senior staff at the company were in open revolt at the prospect of the Yahoo deal. Shareholders who oppose the deal have communicated to Microsoft that the company hasn't at any point spelled out what the return on buying Yahoo would be.

But one shareholder who opposes the deal said Friday that Microsoft hasn't yet sent out a definitive enough signal that it is prepared to walk away to placate those who oppose the deal.
This shareholder concludes that the software giant is still undecided - the third theory.
Microsoft may be balancing the deal's strategic benefits with the possible negative public-relations implications of pursuing a deal that it has since publicly shunned, as well as the prospects of teaming up with Icahn.

Eric Jackson, who personally holds around 250 Yahoo shares but who has also assembled a group of small investors who collectively speak for around 3.2 million shares and wants the deal to happen, said Microsoft's reticence is likely "opportunistic." He believes Microsoft wants to take its time to make sure it has the strongest possible hand in negotiations.

He concedes, however, that there is a body of opposition, both among Microsoft shareholders and some staff, to the deal.

"Icahn doesn't have any leverage with these groups," Jackson said. "But he can underline the appeal of the deal and the increasing difficulty (for Microsoft) of catching up with Google (GOOG) in Internet advertising market share, without it.

"One has to presume that Microsoft has done a lot of thinking about this deal. Planning to make the biggest acquisition in a company's history isn't something that's done lightly, and it's hard to believe that the rationale for the deal has disappeared."

For the record, Microsoft again declined to comment Friday, but people familiar with the company again emphasized that it had "moved on."

-By Jessica Hodgson, Dow Jones Newswires; 415-439-6455; jessica.hodgson@

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CNET: Yahoo investors begin to weigh in on Icahn proxy fight

May 15, 2008 5:03 PM PDT
Posted by Dawn Kawamoto

A major Yahoo investor weighed in late Wednesday with support for Carl Icahn's initiative to unseat Yahoo's board, signaling yet another salvo to be fired in the coming weeks as the proxy fight between Icahn and Yahoo heats up.

Paulson & Co., which owns 50 million Yahoo shares as of March 31, issued a statement saying it was disappointed that Yahoo failed to reach an agreement with Microsoft and continues to support the idea of a tie-up between the two companies to create a stronger rival against Google.
"We intend to support the Icahn slate, but sincerely hope that Yahoo will negotiate an agreement with Microsoft, thereby making a proxy fight unnecessary," Paulson & Co. said in a statement.

The hedge fund is one of the first of what may eventually become a string of Yahoo investors, to declare their support or opposition to Icahn's proxy slate in the coming weeks leading up to
Yahoo's July 3 annual shareholders meeting.

Earlier in the day, Icahn announced the formation of a 10-member proxy slate to run against Yahoo's current board at the meeting. Icahn stated he hopes the formation of the slate may prompt Yahoo to re-enter buyout talks with Microsoft, which withdrew its $33-a-share bid on May 3.

Another hedge fund manager, Eric Jackson of Ironfire Capital, is taking a cautious view regarding Icahn's slate of 10.

"I'm inclined to vote for him, given my disappointment in how this current board has steered the company for the last four years," Jackson said in an e-mail interview. "However, I would like to hear the plans from both sides before deciding on my voting. I basically want to hear which group thinks they can best increase value in the company and how."

In sizing up Icahn's proxy slate, one proxy solicitor noted the shareholder activist had assembled a noteworthy crew.

"He has a good lineup," said Bruce Goldfarb, chief executive of proxy solicitation firm Okapi Partners. "He put forth a very credible slate and this will be a very competitive battle."
One source familiar with Yahoo said Icahn's proxy fight comes as no surprise and cautioned against assuming Yahoo will now run over to Microsoft.

"The ball is in their court. They're the ones who walked away and didn't want to do the deal," said the source, who requested anonymity.

That said, the adversary in this proxy fight is no fly-by-night shareholder activist. It's Carl "I can come after you" Icahn, who has won more proxy fights than he has lost over the past 13 years.

Nonetheless, this source said: "He has a reputation that some people like and others don't. I don't know if some white shoe institutional (investors) are willing to put his board in at Yahoo...Sometimes the devil that you do know is better than the devil you don't know."

That point of a known entity verses unknown entity was echoed by one company that advises institutional investors on how to vote on proxy matters.

In most proxy fights, investors are reluctant to throw out the whole board and give dissidents full control of the board, said Shirley Westcott, managing director of policy for Proxy Governance. "Investors tend to want to give only a few board seats to dissidents, so they could serve as watchdogs or bring some shareholder control to the board."

Icahn's effort to wage a proxy fight for all 10 director seats coming up for re-election in July will be challenging as a result, Westcott noted.

"If Microsoft was launching this proxy fight, a vote for their slate would have been a vote for the deal itself. But Icahn is a different situation. If there is no Microsoft offer on the table by the time of the (shareholders) meeting, it'll be like investors are voting for an alternative slate because they are dissatisfied with Yahoo's corporate governance."

Proxy Governance and Glass Lewis & Co. take a similar approach in evaluating proxy fights as it relates to mergers and acquisitions. Both proxy advisory firms review the quality and experience of the incumbent and dissident directors, whether either camp has engaged in a major merger or acquisition before, how the incumbent board has handled talks up to this point, and how the dissidents would undertake such an effort.

But while Proxy Governance meets separately with both groups, Glass Lewis largely relies on public information it has gleaned and generally does not make it a practice to bring both parties in for an investor road show.

Glass Lewis advises approximately 400 pension funds, mutual funds, and asset management firms, which either take the firm's advice and vote their shares accordingly or not. Proxy Governance has roughly 100 to 150 institutional investor clients.

Firms such as these, as a result, can have great sway on how investors vote their shares. And, as a result, are often the first stop on an investor road show for companies under fire and the dissident camp, say proxy solicitors.

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Wednesday, May 14, 2008

Reuters: Yahoo's board brought this on themselves

Wed May 14, 2008 6:04pm EDT

(Eric Jackson was instrumental in a successful campaign for a change of leadership at Yahoo last year. This year, he continues to lobby against the current board but has opted not to mount his own proxy campaign. The opinions expressed are his own)

By Eric Jackson

NAPLES, Fla. ( -- It's seven weeks until Independence Day.

On July 3rd, Yahoo holds its annual meeting. These gatherings are usually mere formalities, where incumbent directors get re-elected with 99% of the vote.

Yahoo's shareholders won't be so kind this year. The break down in discussions with Microsoft is the latest disappointment they have had to endure. Yahoo's stock has been flat for four years, while the NASDAQ has climbed 30 percent and Google is up 440 percent. Yahoo has also steadily lost search market share, paid lavish executive compensation, missed the opportunity to buy Facebook, and endured steady executive turnover.

Yahoo's board is ultimately responsible for this but it is essentially unchanged over this time period.

Last year, I successfully mounted a "vote no" campaign leading up to the annual meeting. People were upset then about the rudderless direction of the company. More than 34 percent of the votes were cast against three directors, including current Chairman Roy Bostock. Six days later, CEO Terry Semel announced his resignation.

With Microsoft and their reported $33 / share offer now out of the picture, Yahoo holders are preparing to democratically voice their opinions at the July 3rd meeting.

I'm arguing again for an "against" vote for all directors. This "protest vote" will send a message clearly that we hold this board accountable for the lack of results in the past four years. We want significant changes in the composition of the board with replacements who better represent our interests.

It's likely that activist investor Carl Icahn will also file his own slate of nominees for the board by the end of today. (Ed's note: Sources told Reuters on Wednesday that Icahn planned to run a slate). I welcome him or any other shareholder willing to do this. It will truly give us a choice over who represents our interests on the board.

If Icahn is successful, which is likely given investor sentiment, the dynamic at Yahoo board meetings will be changed forever. Tougher questions will be asked, assumptions will be tested, and decisions revisited.

That's no guarantee that Microsoft will come back to the negotiating table (although in my eyes, the strategic logic of a deal is as clear as ever) but Yahoo holders will welcome some new blood on the board.

The Yahoo board can try to make the argument (as they have already) that they did everything right throughout the Microsoft negotiations, but it is tough for a Yahoo holder to believe it, given the track record of the last 4 years. It's a credibility problem that this board brought on itself.

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Tuesday, May 13, 2008

Reuters: Icahn may run Yahoo proxy campaign: source

Tuesday May 13, 8:29 pm ET
By Dane Hamilton

NEW YORK (Reuters) - Billionaire investor Carl Icahn is considering mounting a proxy campaign to replace Yahoo Inc (NasdaqGS:YHOO - News) board members after the company failed to reach a deal to merge with Microsoft Corp (NasdaqGS:MSFT - News), a source close to the matter said on Tuesday.

The veteran investor has built up a stake in Yahoo in the last week and would run a slate in an effort to force the company back to the negotiating table with Microsoft, the source said, asking for anonymity because the decision to go ahead with the move has not yet been made.

It is unlikely that Icahn, a veteran of numerous proxy battles, will join with other hedge funds in the campaign, the source said. A decision to run a proxy slate this year must be made by Thursday to qualify for the July 3 annual meeting.

Microsoft walked away from its bid to buy Yahoo earlier this month after the Internet company turned down its offer to raise its price by $5 billion to $47.5 billion, or $33 per share. Yahoo demanded $37 per share.

A Yahoo spokesman declined to comment on Icahn's potential moves. Microsoft executives have said they were done with their pursuit of Yahoo, and one person close to Microsoft on Tuesday said that remained the case.

The size of the stake Icahn has built could not immediately be determined. He had no Yahoo shares as of early last week, the source said. The Wall Street Journal said Icahn has amassed a stake of roughly 50 million shares, or less than 4 percent of the company's roughly 1.44 billion shares outstanding.

One lawyer who has worked with Icahn in previous campaigns said such a campaign could have good odds of success, providing Microsoft is willing to come back to the bargaining table, which he said is probable.

"The odds are pretty decent," said Marc Weingarten, an attorney with Schulte Roth & Zabel, who said he is not involved in any plans for a Yahoo proxy campaign.

"Yahoo has a lot of unhappy shareholders. And if someone could press the company in getting something done, I would think there is a decent chance at a transaction."

One hedge fund manager who heads a large activist fund said it is "a likely possibility" that Icahn would run a Yahoo campaign. The manager, who has worked with Icahn on previous campaigns, asked to remain unidentified.

Should he decide to get involved, Icahn could be in a position to force the companies to restart the talks. Not only does he have the financial resources to spend the millions of dollars needed for a successful proxy campaign, he also has experience in pressuring companies back to the bargaining table.

Last year, for instance, Icahn was successful in getting Oracle Corp (NasdaqGS:ORCL - News) to return to the bargaining table to buy BEA Systems (NasdaqGS:BEAS - News) after those talks collapsed.

Yahoo shares surged 5.1 percent after news of a possible Icahn move on Yahoo was reported by CNBC on Tuesday afternoon.

The shares closed up $1.30 at $26.56 on Nasdaq. The stock added another 3.5 percent in extended trade, for a total gain on the day of 9.6 percent.

The possibility of a proxy battle has loomed since earlier this month, when Yahoo disclosed that it had rejected Microsoft's offer, sending Yahoo shares lower.

One Yahoo shareholder, Eric Jackson of Ironfire Capital, said last week that he was working to line up support to run a dissident director slate. Jackson said on Tuesday he could not line up financing for a proxy campaign that he said could cost at least $1 million. He told Fox Business Channel he would likely support an Icahn slate, depending on who Icahn proposes.

"It basically came down to dollars and cents," said Jackson in an interview. "The SEC hasn't enacted some sort of open proxy access and that makes it difficult for a shareholder like me to belly up to the bar and put up $1 million. That's the bind I'm in."

Jackson said he still plans to run a "no vote" campaign against current directors, which basically entails reaching out to shareholders and asking them not to endorse the company-sponsored slate.

Jackson was instrumental last year in a campaign to have former Yahoo Chief Executive Terry Semel replaced.

(Additional reporting by Eric Auchard and Anupreeta Das, editing by Richard Chang)

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CNBC: Yahoo Escapes Ironfire Grip; For Now

2:43 PM ET
Posted By:Jim Goldman
Topics:Internet Technology
Sectors:Internet Technology
Companies:Yahoo! Inc Microsoft Corp

Vocal Yahoo dissident shareholder Eric Jackson has decided not to run a competing slate of directors to replace Yahoo's board.

I have just spoken with Jackson, who runs Ironfire Capital and whose 150 members hold 3.3 million shares of Yahoo stock Yahoo! Inc., and he tells me the $1 million cost to mount a proxy war was simply too prohibitive for him and his team. He tells me he has spoken to a number of hedge funds and asset managers who fully supported a competing slate, but that their message was clear: "We can't support you because we don't want to be painted as activists."

Many outsiders thought that Jackson was the most likely individual to put together a group of dissident investors and a competing slate of directors to run against the current Yahoo board.

Instead, Jackson will proceed with what he calls a vigorous "vote-no" campaign against Yahoo's existing board. And he promises a far more vocal campaign than the one he mounted last year, which some experts say was instrumental in the later ouster of Yahoo CEO Terry Semel.

Last year's campaign led to three directors receiving a surprising 36 percent "no vote," and he says that with the meeting this year not until July, he and his group will have additional time to wage an even more effective campaign.

As far as whether someone will step forward with a competing slate of directors, Jackson tells me he isn't hopeful. "I just hope they won't take the approach that, 'We'll get $31 or $33 a share so vote us in.' Instead, they should say, 'We want a better board, a more independent board that truly represents the voices of the shareholders.'"

He says he's aware of speculation that Carl Icahn may run his own board by launching a proxy war of his own, but that Yahoo's board will likely escape the proxy battle many thought was an almost certainty after the $47 billion unsolicited bid from Microsoft was ultimately shelved.

The deadline for a competing slate of directors to be nominated is Thursday, May 15. Of course, Yahoo just recently, through some work with Google and discussions with AOL Time Warner Inc, ducked a Microsoft Microsoft Corp overture.

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Fox Business: Yahoo Activist Investor Calls for New Board of Directors

Tuesday, May 13, 2008

New York--Yahoo (YHOO: 26.56, +1.30, +5.14%), the Sunnyvale, Calif. listed Internet company that fought off an unsolicited bid by Microsoft (MSFT: 29.78, -0.10, -0.33%), is seeing activist investor Eric Jackson of Ironfire Capital call for investors to vote against the company’s existing board of directors.

In an interview with Liz Claman on the Fox Business Network, Jackson, who, along with other individual investors collectively own 3.3 million shares of Yahoo, said he’s urging investors from now until Yahoo’s board meeting on July 3 to vote against every one of the 10 board members including Chief Executive Jerry Yang. He said investors are “frustrated” over the board’s “lack of oversight” during the past four years. Jackson noted he wants Yang gone.

“The breakdown in talks with Microsoft is the latest example of another misstep by this board of directors," said Jackson. While Jackson isn’t nominating a slate of directors, given the costs associated with doing that, he said he would support activist investor Carl Icahn or any other shareholder that waged a proxy fight against Yahoo.

“I’m always in favor of Yahoo shareholders whoever they are, coming forward with alternatives,” said Jackson. “I think shareholders are best represented by some new blood. Whether it’s Carl Icahn or whether it’s someone else coming forward with some folks, in general yes I think that’s a good thing.” He said he would support Icahn as long as Icahn was pushing for fresh blood at Yahoo.

Jackson, who was instrumental in the ouster of former Yahoo CEO Terry Semel, is betting shareholders will come out in droves and vote, saying it will likely be the most “participated election” of this year, “People are irate. They are upset," said Jackson.

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WSJ: Icahn Enters Microsoft-Yahoo Fray

May 13, 2008 5:10 p.m.

Billionaire investor Carl Icahn has amassed a stake in Yahoo Inc. and is leaning toward launching a proxy contest to unseat at least part of Yahoo's board, according to one person familiar with the situation.

Mr. Icahn bought roughly 50 million Yahoo shares since Microsoft Corp. on May 3 withdrew its unsolicited offer to buy Yahoo, the person said. Mr. Icahn is expected to decide Wednesday whether to launch a proxy contest -- a Yahoo deadline for board nominations looms Thursday -- and he currently has no assurances from Microsoft it would reconsider a Yahoo purchase. The person said that Mr. Icahn was unsure whether he would nominate a full or partial slate of candidates to try to replace Yahoo's 10-person board. A shareholder vote on any such nominees would take place at Yahoo's annual shareholder meeting on July 3.

Shares in Yahoo climbed more than 5% to $26.56 in 4 p.m. Nasdaq Market trading Tuesday following a CNBC report that Mr. Icahn was weighing such an effort. A spokeswoman for Mr. Icahn declined to comment.

Other activist hedge-fund managers also are eyeing Yahoo and deciding whether to become involved in any fight. Scott Galloway, founder of investment firm Firebrand Partners LLC, and his firm are examining the situation and may get involved, according to people close to the matter. Mr. Galloway, who waged an activist campaign against New York Times Co. that recently netted him a board seat, declined to comment. A person familiar with the matter said that he and Mr. Icahn were not currently coordinating their efforts.

One reason for such an activist effort may be to rekindle negotiations to sell Yahoo to Microsoft at a premium to its current share price. The earlier talks broke down May 3 with Microsoft citing a divide on price. Since then, some Yahoo shareholders have tried to pressure Yahoo's board to return to Microsoft and try to sell the company. Some large Yahoo shareholders have contacted Mr. Icahn in recent days, urging him to become involved, said one of the people familiar with the matter.

But, for now at least, Microsoft has moved on and is not considering such a deal, said people familiar with the matter. A Microsoft spokesman declined to comment other than to cite Chief Executive Steve Ballmer's May 3 letter withdrawing Microsoft's offer as the company's current stance.

One person close to Yahoo said that the company is not overly worried about a proxy challenge because it believes investors who wouldn't support such a campaign hold a significant enough share of its capital. Yahoo co-founders Jerry Yang and David Filo together own roughly 10% of Yahoo. A Yahoo spokesman wasn't immediately available for comment.

Separately, activist investor Eric Jackson said he likely won't nominate any candidates for Yahoo's board after trying to muster financial support from Yahoo shareholders for such an effort. "It's 90% certain I'm not going to," said Mr. Jackson, who holds 96 Yahoo shares. "It's cost prohibitive for me to proceed on my own." Mr. Jackson plans to proceed with his campaign to get shareholders to withhold their votes from Yahoo's current directors at the next annual meeting in protest. "This breakdown in talks with Microsoft is just the latest mistake--or poor outcome--for shareholders," he added.

--Marissa Marr contributed to this article.

Write to Gregory Zuckerman at and Kevin J. Delaney at

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Saturday, May 10, 2008

Dow Jones: Could Shareholders Boot Out Yahoo's Board?

May 09, 2008: 03:48 PM EST

SAN FRANCISCO (Dow Jones) -- As Yahoo Inc. gets ready to face the wrath of its shareholders, the company may learn from the plight of another tech firm, whose board directors rejected a sweetened takeover offer and are now on the verge of being booted out.

This happened just last week, shortly before Microsoft Corp. withdrew its blockbuster offer to buy the beleaguered Web portal.

At a little-known Massachusetts company called Axcelis Technologies (ACLS), three directors were voted down by investors after the company rejected what many shareholders felt was a generous $616 million takeover offer from Sumitomo Heavy Industries.

The shareholder revolt got some support from a company policy that says director-nominees who don't win a majority of the votes cast must offer to resign.

The Axcelis battle underscores a trend in the corporate world where more companies, responding to the clamor for greater boardroom accountability, have adopted similar policies often referred to as a "majority-voting rule."

Chris Young, director of M&A research at RiskMetrics Group, described the Axcelis case as "the first test case where a hostile M&A transaction and a relatively new innovation of majority voting for the election of directors collide."

An even bigger collision may be about to take place at Yahoo (YHOO). The company adopted its own majority-voting rule in early 2007 and is now facing a campaign urging shareholders to boot out its entire board, including Chief Executive Jerry Yang and Chairman Roy Bostock, at its upcoming annual meeting, scheduled for July 3.

The group blames Yang and the rest of the board for blowing the proposed $47 billion merger bid from Microsoft (MSFT), which pulled its offer after failing to agree with Yahoo management on a price.

Signs of trouble

Young at RiskMetrics said that there were signs of an even more serious shareholder uprising against Yahoo, possibly from an activist hedge fund. He pointed to a key indicator: 600 Yahoo million shares have traded since Monday, when the company's stock plunged after the collapse of the talks with Microsoft.

"Who is buying Yahoo?" he asked in a research note. "Unsubstantiated market rumors have run rampant in recent days that unnamed activist funds are accumulating Yahoo shares, with a view to doing precisely what unsatisfied vanilla investors will not do -- lead an opposition campaign at Yahoo's upcoming annual meeting."

Meanwhile, there is an open campaign already being waged by a group of disgruntled Yahoo shareholders, who are urging other investors to withhold votes for the company's board after it rejected Microsoft's merger offer, even after the software giant raised its bid to $33 a share from $31.

The group is led by Eric Jackson, who runs a small investment firm and was involved in a similar campaign last year against certain Yahoo directors, who were criticized for giving what some investors felt was excessive compensation to former chief Terry Semel. In a strong symbolic message, the targeted directors were re-elected, but with far fewer votes than in the past.

Jackson said he's aiming higher this year. "I'm shocked and angry like every other Yahoo shareholder I've spoken with," he commented. "All Yahoo shareholders should vote out the entire Yahoo board at the upcoming meeting."

While last year's campaign targeted select members of the Yahoo board, he added, "this year, I
think everyone should go. They are all responsible. They all have to wear this failure."
Yahoo declined to comment on the matter.

An activist opportunity?

The chances of Jackson's campaign succeeding are unclear. He said that he has a little more than 90 shares, and his group collectively has roughly 3.1 million of Yahoo's roughly 1.3 billion outstanding shares.

But this anger at Yahoo's board is shared by managers from two of its biggest shareholders -- Legg Mason, with about 7% of Yahoo shares, and Capital Research Global Investors, with roughly 6%.

The pair has publicly blasted Yahoo management for the way it handled the Microsoft bid. Capital Research portfolio manager Gordon Crawford told the Los Angeles Times that Yahoo drove away "a willing and fairly generous player, and all of us are the poorer for it today."
Neither institution has indicated if it will launch or join any campaign against Yahoo's board.

Young wrote that "normally 'plain-vanilla' investors" such as Capital Research and Legg Mason would typically not lead an activist campaign because of "a stigma attached to activism at traditional 'long-only' funds." But he said that these institutions "may and often do" support a campaign led by a hedge fund.

"Because activist hedge funds have no such reputational qualms, they would be free to run a highly public and critical offensive," the analyst elaborated in his note. "Yahoo certainly appears to present an attractive activist opportunity."

Microsoft has said that it does not plan to launch a proxy campaign to take over the Yahoo board, despite earlier suggestions that it might do so. The company acknowledged that it has released the candidates it had tapped prior to calling off the Yahoo bid, but has declined to comment further.

However, Jackson said that his group is also contemplating fielding an alternative slate of directors. Shareholders have until May 15 to submit the names of candidates.

'Mostly symbolic'

Under Yahoo's current bylaws, a director-candidate in an uncontested election needs to win a majority of the votes cast. However, like at Axcelis, the board also has the power to accept or reject the resignation of a director who got voted down.

If the elections are contested, however, directors will be elected based on a plurality of votes cast.

This has typically been the way elections have been run in the past, even though many felt the winners were not always popular among shareholders, according to Young. "Everybody may be against you and one vote gets you elected, " he said. "Some people found that distasteful."

Charles Elson, director of the Center for Corporate Governance at the University of Delaware, said that the push for the majority-vote rule intensified after the Enron debacle as shareholders sought a bigger role in board elections.

"It's a way for shareholders to veto a director," Elson commented. "It's a way to make a no vote count."

However, Michael Klausner, a corporate-law expert at Stanford Law School, said that a "vote no" campaign would also have limitations, since the company would retain the power to replace a rejected director-nominee.

"The effect would be symbolic," he added, conceding that "it does add an element of pressure on the current management."

That kind of pressure led to the stunning outcome earlier this month at Axcelis, a semiconductor-equipment maker. The campaign involved the company's second-largest holder, Sterling Capital, which announced that it was withdrawing votes from three incumbent directors up for re-election.

The Axcelis battle, similar to the Microsoft-Yahoo dispute, began in February when Sumitomo announced an unsolicited bid to buy the company for $5.20 a share, sweetening the deal later to $6. But the Axcelis rejected the offer, saying it undervalued the business. That set the stage for a proxy battle between Axcelis and its shareholder base.

Young speculated that Sumitomo may have been indirectly involved in the proxy battle by waging what he described as a "stealth vote no" campaign. Sumitomo did not immediately have a comment on the speculation.

In a stunning blow to the Axcelis management and board, the three directors failed to win majority of the votes. In a letter to shareholders, Chief Executive Mary Puma announced that the rejected directors will offer to step down from the board, but added that the board will decide whether to accept the resignations. Spokesman David Snyder said a decision will be announced "in the next few weeks."

Sumitomo, for its part, has said that it was willing to resume talks with Axcelis. Snyder said the firm "clearly communicated our willingness" to discuss "a mutually beneficial transaction" with Sumitomo.

A stealth campaign

Could the Axcelis battle be replayed at Yahoo, and could Microsoft launch a similar stealth campaign?

The software giant has suggested it didn't see a proxy campaign as practical. Young at RiskMetrics said that Microsoft could follow Sumitomo's game plan "in theory," but he added:
"They cannot be seen as soliciting proxies. Sumitomo was very careful to ensure that no one could accuse them of running a campaign, and Microsoft would face the same issues."

But in his note, the analyst also wrote that Microsoft "could continue to claim, with a straight face, that it is not a hostile acquirer, a particular sensitivity in the technology space, while perhaps egging the activists on behind the scenes."

In any case, Yahoo faces serious problems even if Microsoft doesn't join the fray.
In a separate note, Young described the "blood in the water" effect in a hostile-takeover fight, in which a target company that succeeds in beating back a "shark" is left "wounded and vulnerable to a future, second attack."

This will become clearer in the coming weeks. Yahoo finally announced that its much-anticipated shareholder meeting will be held Thursday, July 3.

"Great date if you want to minimize attendance!" analyst Katherine Egbert of Jefferies & Co. quipped in a note, referring to the July 4th holiday weekend.

Despite the seemingly inconvenient timing, she said: "This promises to be one of the most controversial meetings considering shareholders' anger with management and the board for not having negotiated an acceptable outcome with Microsoft."

Jackson, the dissident shareholder, still hopes that Microsoft will return to the negotiating table. "I think Microsoft is sitting back, enjoying watching this civil war erupt," he said. "As shareholders, we have to take control of this situation and can't just leave it in the hands of the existing board. Whether or not Microsoft comes back, this board needs to go."

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Tuesday, May 06, 2008

Dow Jones: Wall Street Bids Up Yahoo In Anticpation Of Proxy Battle

DOW JONES NEWSWIRESMay 6, 2008 9:33 p.m.

By Scott Morrison of


SAN FRANCISCO (Dow Jones)--Jerry Yang's fight to remain in control of Yahoo Inc. (YHOO) may be entering a new perilous phase.

Wall Street was abuzz with speculation Tuesday that one or several activist shareholders were cobbling together a significant stake of Yahoo shares in preparation for a proxy fight at the struggling Internet giant's annual meeting on July 3.

Top Yahoo shareholders have openly blasted Yang, the company's co-founder and chief executive, for the way he responded to Microsoft Corp.'s (MSFT) sweetened $47.5 billion takeover offer on Saturday.

Microsoft Chief Executive Steve Ballmer increased his three-month-old offer for Yahoo to $33 per share. Yang countered at $37. Ballmer concluded they had reached an impasse over price and withdrew the offer. Shareholders then indicated they would have been willing to sell to Microsoft for a lower price than indicated by Yang.

"The tide turned when you started to see major Yahoo shareholders question what happened," said Scott Kessler, analyst at Standard & Poor's. "Serious questions about (Yang's) credibility have been raised."

Yahoo shares plunged 15% Monday after the deal collapsed, but the Internet company's stock rebounded more than 5% on Tuesday as investors bet that Microsoft might revive its bid if dissident shareholders gained control of Yahoo's board.

But it wasn't clear whether Ballmer remained interested in acquiring Yahoo. The software giant has cryptically said it has "moved on" after talks broke down over price, although it hasn't ruled out a Yahoo deal. Yahoo declined comment.

Observers said it was highly unlikely Ballmer would at this point come back to the table, even if Yang were to buckle to shareholder pressure to get a deal done.

"From an optics perspective it would be difficult for either side to agree to a friendly deal in the short term," said Chris Young, director of M&A research at RiskMetrics Group, the risk management and corporate governance firm. "There is nothing really preventing an activist hedge fund, or two, or three, to get involved and use a proxy fight to get the (Yahoo) board in line."

At least one small Yahoo shareholder, Ironfire Capital president Eric Jackson, said he is trying to recruit an alternate slate of directors to put up for election at Yahoo's annual meeting. The main purpose of replacing Yahoo's board would be to revoke the company's anti-takeover measure, typically known as a poison pill.

But Jackson holds just 96 of Yahoo's 1.4 billion shares and corporate governance experts said any successful campaign would require the participation of major activist shareholders and the support of top institutional investors.

Jackson said top investors were mulling support for his effort but were putting off their decision until after he draws up a slate of nominees.

Arbitrageurs suggested a number of well-known activist hedge funds were responsible for the unusually high volume Yahoo shares traded on Tuesday, but traders were unable to specify which funds were active in the market and no major shareholders had announced that they were preparing to spearhead a proxy fight.

A campaign to topple Yahoo's board would face two major challenges. The first is that it's not clear whether Microsoft would step in to buy Yahoo should dissident shareholders gains control of the board.

That could leave activists with a position and board seats at a company they don't want to own. Given such a risk, activists must put together a credible slate of directors with the industry expertise, capital markets background and corporate governance experience to improve the company's operations and make it more attractive to potential acquirers, said Young.

"Their first priority would be to get the company sold to Microsoft at a premium price, but they have to prepare for the possibility that Microsoft won't play ball," he said.

The second challenge is the short window. Yahoo announced the date of its annual meeting late Monday, which now gives shareholders until May 15 to submit an alternate slate of directors for Yahoo's board. One arbitrage trader said the short time frame would work against dissidents looking to cobble together a credible slate.

But others argued it has been done before and it could easily be could be done again. "A lot can happen in 10 days," said Charles Elson, a corporate governance expert at University of Delaware.

One reason is that dissidents would be more likely than not to nominate a "short slate" consisting of one to three directors, rather than try to replace Yahoo's entire 10-person board.

Shareholders would be less likely to replace an entire board because such a move could be too disruptive to a company's operations, said corporate governance experts. A short slate option, on the other hand, lets shareholders add new blood on a board and deliver a message to remaining board members without creating wholesale disruption.

Numerous shareholders have made it clear they're extremely unhappy with Yang's performance in this saga and observers said he would almost certainly be the priority target for any group of dissident shareholders. Even worse for Yang is the fact that dissidents who agitate against corporate boards more often than not get their way.

"In the majority of cases we've tracked over the past several years, the activists have won," said Young.

-By Scott Morrison; Dow Jones Newswires; 415-765-6118;

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The AP: Yahoo board may face shareholder mutiny at annual meeting

By MICHAEL LIEDTKE – 2 hours ago
May 6, 2008

SAN FRANCISCO (AP) — After fending off months of threats by Microsoft Corp., Yahoo Inc.'s directors still will have to fight for their jobs as the company's own irate shareholders plot a mutiny.

Spurred by widespread criticism about how Yahoo's board responded to Microsoft's sweetened takeover offer of $47.5 billion, an activist shareholder is trying to recruit an alternate slate of directors to present at Yahoo's annual meeting on July 3.

"We are hoping to turn that (meeting) into 'Independence Day' for Yahoo's shareholders," said Eric Jackson, president of Ironfire Capital.

Yahoo announced in March it was postponing the annual meeting, hoping to squelch Microsoft's threatened attempt to remove the board if the software maker decided to pursue a hostile buyout of the embattled Internet pioneer.

The specter of a hostile takeover evaporated over the weekend when Microsoft Chief Executive Steve Ballmer withdrew a 3-month-old offer after concluding he had reached an impasse with Yahoo's board over a mutually acceptable sales price.

Ballmer had orally offered to pay $33 per share, or $47.5 billion, up from an initial bid valued at $44.6 billion, or $31 per share. At the time the negotiations collapsed, the value of Microsoft's original offer had fallen to $42.3 billion, or $29.40 per share, because half the deal was supposed to be financed with Microsoft's declining stock.

Yahoo's board wanted $37 per share — a price that the company's stock hasn't reached in more than two years.

"It's hard to believe the board could let this happen," Jackson said. "I think they completely misconstrued the situation and thought, 'Microsoft is rich, so let's soak them.' They were bluffing all the way and got caught."

Yahoo declined comment Tuesday. Yahoo Chairman Roy Bostock and Chief Executive Jerry Yang — a board member — have staunchly defended their handling of the Microsoft negotiations. Both have said the board wasn't drawing a line in the sand with the $37-per-share demand.

"We engaged with them and we wanted to find a way to get something done. But they walked," Yang said in an interview Monday.

Investors are apparently still holding out hope that Yang and Ballmer can set aside their differences and perhaps renew negotiations, even though Microsoft has been signaling it will explore other ways to improve its unprofitable Internet operations.

The possibility of revived talks helped lift Yahoo shares by $1.35, or 5.5 percent, to finish Tuesday at $25.72. That left Yahoo's market value more than $10 billion below Ballmer's last offer.

Yahoo announced the date of its annual meeting late Monday, giving Jackson until May 15 to submit an alternate slate of directors. Without providing specifics, Jackson said he has already approached several "well-known and credible" candidates well-versed in the problems facing Yahoo.

Even if he doesn't assemble an alternate slate of candidates, Jackson vowed to spearhead a campaign urging shareholders to vote against the re-election of Yahoo's current directors.
Any director who is opposed by more than half of Yahoo's shareholders is supposed to submit a letter of resignation under the company's rules. But Yahoo doesn't necessarily have to accept the resignation.

Although he only owns 96 Yahoo shares, a sliver of the roughly 1.4 billion outstanding, Jackson has experience rallying stockholders around a common cause.

Jackson spent several months leading up to last year's annual meeting organizing an online protest against Yahoo's Terry Semel, the CEO at the time. The crusade culminated at the annual meeting, where Jackson confronted Semel and asked the CEO if he still had enough "fire in his belly" to do his job. Semel resigned six days later and was replaced by Yang.

Jackson's latest revolt may find two powerful allies in Yahoo's two largest shareholders, Capital Research Global Investors and Legg Mason, whose portfolio managers have both publicly expressed their disappointment with the Yahoo board's demand for $37 per share.

Already, Yahoo stockholders with about 3 million shares have pledged to support Jackson's attempt to replace the board.

Sphere: Related Content The Activist Investor: Boot Yahoo!'s Board

Cross-posted from the May 6, 2008

By Eric Jackson
05/06/08 - 03:01 PM EDT

The past weekend delivered a round of shock and awe for Yahoo! (YHOO - Cramer's Take - Stockpickr) shareholders. I -- and every single shareholder I've spoken to since the news broke that Microsoft (MSFT - Cramer's Take - Stockpickr) had revoked its offer for Yahoo! -- expected a friendly deal to happen by the open of U.S. markets Monday.

Instead, we got word that a meeting at Sea-Tac airport on Saturday between Microsoft and Yahoo! had led nowhere.

According to reports, Microsoft offered $33 a share for Yahoo!, to which Yahoo! CEO Jerry Yang and Co-Founder David Filo said they wanted $38 and their board had only authorized them to agree to $37.

By pulling its offer, Microsoft was effectively saying, We've had enough of this amateur hour foot-dragging and unrealistic sense of valuation.

When the markets opened Monday morning, Yahoo! shareholders saw $13.7 billion in market capitalization eviscerated (although the stock has climbed since then on hopes that Microsoft is going to re-emerge as a suitor).

Shareholders are irate.

Although Yang and Filo deserve blame (why was David Filo at Saturday's meeting?) for this outcome, the real blame lies at the feet of the board. This whole negotiation has been botched by Yahoo! from the beginning.

Bungled Negotiations

First it was the interminable foot-dragging just to get a response from the company to Microsoft's Feb. 1 offer. Then, they approved a poison pill-like severance and retention plan to make any acquisition much more expensive for Microsoft. Next, they clung to the belief that the company was "significantly under-valued" for anything less than $41 a share, even though they'd only briefly reached that valuation once (in late 2005) since the bubble days.

These were the actions of a board that didn't want to sell the company to Microsoft. These were the actions of a board that was embarrassed by the fact that Yahoo! had reportedly passed on a $41/share offer from Microsoft in the spring of 2007. They didn't come to $41 after a careful analysis of what the company was worth today. They simply wanted to avoid the stigma of accepting anything less than what they previously may have passed up.

They thought they could play tough with the rich guy from Redmond. They can afford $41 a share, the thinking likely went, so why not hold out for it?

They played chicken with our (the shareholders') money and lost. When Microsoft walked, they were caught red-faced with no explanation that will pacify shareholders.

What was more galling for shareholders was to read a report in The New York Times that there were high-fives all around the Yahoo! executive offices in Sunnyvale on Saturday night. (Jerry Yang has said since that this didn't happen, although reporter Miguel Helft is a professional. It's hard to imagine he'd make that detail up.)

But what has stuck in the craw most of all for Yahoo!'s shareholders is Chaiman Roy Bostock's post-deal statement Saturday that "From the beginning of this process, our independent board and our management have been steadfast in our belief that Microsoft's offer undervalued the company and we are pleased that so many of our shareholders joined us in expressing that view."

Rather than react directly, I will simply repeat the comment from respected investor Gordon Crawford of Capital Research -- the largest holder of Yahoo! stock with 16% of the shares:
"I would love to know who these shareholders are. It's none of the ones that I talked to today. Everybody I talked to would have sold their stock at $34."

We're still waiting for one shareholder, any shareholder, to stand up and support Yahoo!'s actions.

Crawford went on to comment in The Wall Street Journal, in an highly unusual public dressing down for such a large investor in such a high-profile company:

"I'm extremely disappointed in Jerry Yang ... I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."

Back-Tracking, and Your Vote

The natives are restless -- and Yahoo! knows it. Late Monday, presumably after a non-stop barrage of phone calls from angry shareholders, Yang and Bostock back-tracked, telling Reuters: "If they [Microsoft] have anything new to say, we would be open. ... I [Jerry] am more than willing to listen."

This openness to a deal is what's supporting Yahoo!'s stock, which continues to strengthen today, up about 5% at $25.57 in recent trading Tuesday. Shareholders may believe a deal with Microsoft is imminent. We'll see.

One thing is clear: Shareholders can no longer trust that their interests will be protected by the current members of this board.

In my opinion, they all need to go. Sunday, I launched a "withhold" campaign aimed at Yahoo!'s board. I'm asking all Yahoo! shareholders, whether you're Gordy Crawford or Bill Miller or John Doe Investor, to mark the "against" box on the Yahoo! proxy, which you will receive in the coming weeks, ahead of the July 3 Yahoo! annual meeting.

At that meeting, all shareholder votes will be tallied to see who voted "for," who voted "against," and who voted "abstain" for each and every director. If any director receives 50%-plus votes marked "against," that director must tender his or her resignation, according to Yahoo!'s corporate by-laws. Yahoo! might choose not to accept the resignation, but that would likely further raise the ire of investors.

A "withhold" or "against" vote is a direct protest vote. It can make a difference, although we would still have no say over new directors Yahoo! might choose to replace them with.

Last year, I led a campaign to encourage Yahoo! shareholders to vote "against" seven or 10 directors. As reported by the Times last year, of "the 1.125 billion shares outstanding, 35 percent voted against, the reelection of Mr. Burkle, 35 percent against Mr. Kern, and 34 percent against Mr. Bostock." All the other directors received 6-8% of the votes cast against them. Six days after the annual meeting last year, Terry Semel resigned after saying to me that he still had the "fire in the belly" to continue on, during the Q&A at the meeting.

Based on the frustration and anger expressed in the last couple of days, a sharp uptick in "against" votes is highly likely two months from now. And no deal with Google (GOOG - Cramer's Take - Stockpickr), stock buyback, or dividend is going to stop it.

We could conceivably see every single Yahoo! director voted out on to the curb on July 3. Now that would make for some impressive Independence Day fireworks for Yahoo!'s long-suffering shareholders.

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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Business News Network: Yahoo! Interview on Squeeze Play

Here is a TV interview I did with the Canadian "Business News Network" from May 5th, discussing the failed Yahoo!-Microsoft merger.

Here is the link to the interview, go to the 26 minute mark.

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SF Chronicle: Yahoo stock plunges 15% on busted deal

Verne Kopytoff,Tom Abate, Chronicle Staff Writers

Tuesday, May 6, 2008

Investors pummeled Yahoo Inc. stock Monday, sending the company's shares down 15 percent after Microsoft Corp. dropped its high-profile takeover bid for the Web portal over the weekend.

Yahoo shares fell $4.30 to $24.37 in the first day of trading after Saturday's announcement. The sell-off suggests that many shareholders wanted a merger.

With none imminent, some disappointed investors plan to revolt by voting against all of Yahoo's board members at the next annual meeting. Yahoo faces the prospect of shareholder lawsuits for failing to accept a deal, adding to the handful filed over the past few months that are already
winding through the courts.

Yahoo shareholder Eric Jackson said he is upset by Yahoo's decision to reject the merger and complained that the company's board had "played chicken with shareholder money." He plans to organize fellow shareholders to try to unseat Yahoo's board and potentially offer a competing slate at the company's annual meeting, which is set for July 3.

Jackson, who owns 96 shares and has been a thorn in Yahoo's side in the past, has been joined in his quest by about 140 shareholders who collectively own 2 million Yahoo shares.
"This board bungled the negotiations from the beginning," he said.

Kevin Landis, chief investment officer with San Jose's Firsthand Funds, which owned 460,000 shares of Yahoo at the end of 2007, the most recent total available, was of a similar mind.
"I think that was a pretty good-looking bird in hand and that they should probably have taken it," he said.

In a blog post late Sunday, Yahoo Chief Executive Officer Jerry Yang insisted that the prospect of a merger has made Yahoo a "stronger, more focused company with an even greater sense of purpose." He said that Microsoft's offer simply wasn't in the best interest of shareholders and that his company can now better focus on its turnaround plan.

"No one is celebrating about the outcome of these past three months ... and no one should," he wrote. "We live and work in a competitive world, and the Web is only going to get more competitive. Executing on our strategic plan is what matters most."

What if shareholders sue over the collapse of the deal?

Kevin LaCroix, an attorney with OakBridge Insurance Services, a Connecticut firm that protects board members, sketched out the legal landscape. He noted that the saga began with an unsolicited offer or "bear hug" from Microsoft.

That forced Yahoo's board of directors to act as legal fiduciaries for shareholders. That term, from the Latin fiducia, or trust, requires that board members evaluate the Microsoft offer based on whether it is best for shareholders, independent of their own financial or personal interests in the company.

Referring to the shareholder lawsuits filed earlier in the drama, LaCroix said those cases alleged that the deal wasn't rich enough. These are called "bump up" suits, he said, and they are common because if and when deals close higher than their starting price, plaintiffs can argue that their action benefited shareholders and that they should therefore be rewarded by at least having their attorneys' fees paid.

But now Microsoft has walked away from Yahoo, LaCroix said, shareholders could file a different type of a suit called a "bust up" action. Shareholders would have to prove that the board breached its fiduciary responsibility in rejecting the deal because it isn't enough to say the deal collapsed and the stock went down.

"Courts generally won't second-guess decisions that are made by boards," LaCroix said.
Any bust up suit would likely be filed in Delaware, the state in which Yahoo is incorporated. Delaware attorney Francis Pileggi, an expert in such cases, said boards have considerable latitude to reject unsolicited offers like Microsoft's bear hug, as long as they have prudent reasons to believe that independence or some other strategy would be in the best long-term interests of shareholders.

So as long as Yahoo's board was appropriately counseled on the pros and cons of the deal, it would be tough for shareholders to claim foul just because the stock price sank after the deal fell through, he said.

Attorney Edward Deibert, with the Howard Rice law firm in San Francisco, said Yahoo's board must now convince investors that its plans will be better for shareholders than Microsoft's bid.
"Now they are under pressure to deliver something," Deibert said.

Yahoo's board has contended that Microsoft's bid, ultimately valued at $47.5 billion, or $33 per share, substantially undervalued the company. The board demanded $53 billion, or $37 per share.

Negotiations collapsed on Saturday.

Yahoo's stock didn't fall Monday as low as $19.18, where it traded just before Microsoft made its bid Jan. 31. Instead, it held at a middle ground, partly because of the possibility that Microsoft could make another bid.

Fiduciary responsibility

From the Latin word fiducia, meaning trust. A fiduciary is legally responsible to act in the best interests of those whose financial assets the person or company manages; in this case, Yahoo board members hold a fiduciary responsibility to the company's shareholders. It wouldn't be enough for shareholders to claim the stock went down after the deal collapsed. They would have to prove the board breached its fiduciary responsibility by letting some conflict stand between the deal and the best interest of shareholders.

E-mail the writers at and

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SJ Mercury News: Yahoo investors up in arms


By Pete CareyMercury News

Article Launched: 05/06/2008 01:32:43 AM PDT

Yahoo faced a shareholders' rebellion Monday as the stock market punished the pioneering Internet company for its weekend rejection of Microsoft's $47.5 billion bid.

One hedge fund manager said he was encouraging investors to vote against Yahoo's board members at the next annual meeting, which the company scheduled late Monday for July 3.

"I haven't spoken to one Yahoo shareholder who is happy," said Eric Jackson of Ironfire Capital, a small, activist hedge fund. Jackson said the dozen investors he'd spoken to were "upset, frustrated and wanting to know what they can do."

The Web pioneer's stock closed down 15 percent, or $4.30, to $24.37 a share, the first trading day after a Saturday morning meeting between Yahoo's two co-founders and top Microsoft executives left the two sides at an impasse over price.

Microsoft CEO Steve Ballmer called Yahoo CEO Jerry Yang on Saturday afternoon to say he was dropping his company's offer.

Still, Monday's close, while a significant loss, is higher than the bargain-basement level of $19.18 on the day before Microsoft announced its offer, indicating that some investors think Microsoft might come back with another offer.

The Sunnyvale-based Internet company now faces an uncertain future. Yang promised to make its Web sites more useful to users, more effective for advertisers and more friendly for software developers; others weren't so sure.

Yahoo Chairman Roy Bostock issued a statement Saturday that thanked "so many of our shareholders" for joining Yahoo's board in believing Microsoft's offer undervalued the company.
But one institutional investment manager noted that shareholders didn't make the decision on Microsoft's final offer of $33 a share.

"Jerry has not given the shareholders a vote in this," said Larry Haverty of Gabelli Funds' GAMCO Investors. "The shareholders never got a chance to say whether $33 was a good price or not, and people, including myself, are very skeptical about the forecasts he's put out."
Haverty said that had Gabelli been given a chance to take $33 "we probably would have, particularly if some of it was in Microsoft stock." Gabelli owns 1.2 million shares in each company.

There was still the possibility that the two companies would reconcile their differences and join forces, though Yahoo's reaction to the collapse of the deal made that seem unlikely. Citi Investment Research put a 15 percent probability on that happening.

Haverty said that Yahoo's new stock price reflects its fair value, rather than a bet by investors that Yahoo will change its mind and accept Microsoft's bid. But, he said, it is unlikely that Microsoft is "going away forever."

The long-term prospects for Yahoo are worse than ever, said securities lawyer Anthony Sabino. The company has turned down a lucrative offer and remains in play, he said.

In any resumption of negotiations, Sabino said, Ballmer could "play the spurned lover who storms away; and it is going to take a lot to get him back to the table."

Microsoft withdrew its final offer of roughly $47.5 billion late Saturday after a flurry of last-minute negotiations failed to produce a compromise price. Microsoft's original offer was $31 a share. Microsoft's Ballmer wrote in a letter to Yang that Yahoo wanted $4 a share more - in other words, $37.

"The spotlight will be on us - just as it has been for the past three months," Yang said in an e-mail to staff. The company will prove its worth "by executing against the strategies and priorities we already have in place, and by continuing to deliver indispensable experiences for our communities of users, advertisers, publishers and developers," he wrote.

Others were saying "show me," displeased that the firm turned its back on an offer that would have given shareholders a 70 percent premium over Yahoo's Jan. 31 share price.

"For you, me and the common investor, the best thing to do is stay out of the way," said Jeff Embersits of Shareholder Value Management.

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Cap Research's Gordon Crawford Speaks about Yahoo!

SAI picked up the comments of Gordie Crawford from Cap Research which were reported in the Journal and the Times earlier today - the #1 Yahoo! stockholder owning a 16% stake.

I've chatted with many institutional holders in Yahoo! for 18 months now about changes which should be made at the company. Institutional holders are always very polite, they hold deep convictions about their investments, and are privately supportive of anyone's efforts to create value for their investments. However, they are never public. They prefer to communicate their views to the management teams and boards of their investments in private.

These comments are a stinging rebuke of Yahoo!'s board and their bungled management of this Microsoft negotiation.

Here are the comments from the Journal and then the Times:

"I'm extremely disappointed in Jerry Yang," said Gordon Crawford, a portfolio manager at Capital Research Global Investors, which owns over 6% of Yahoo's shares. "I think he overplayed a weak hand. And I'm even more disappointed in the independent directors who were not responsive to the needs of independent shareholders."

It's evident that most shareholders would have been perfectly happy with a transaction in the $34 range," said Mr. Crawford. The concern owned over 16% of Yahoo's shares according to the latest available regulatory filings, making it Yahoo's largest shareholder.


“I am extremely angry at Jerry Yang and at the so-called independent board,” said Gordon Crawford, portfolio manager for Capital Research Global Investors...

Mr. Crawford questioned a statement from Mr. Bostock in which he said the company was pleased that so many shareholders had supported its position.

“I would love to know who these shareholders are,” Mr. Crawford said. “It’s none of the ones that I talked to today. Everybody I talked to would have sold their stock at $34.”

“I’m hoping that there is such an outpouring of outrage that the board is embarrassed into revisiting this thing,” Mr. Crawford added, “but I’m not optimistic about that.”

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Monday, May 05, 2008

The Independent: Yahoo's small investors plot coup after it spurns Microsoft takeover

By Stephen Foley in New York
Tuesday, 6 May 2008

Yahoo faces a revolt by shareholders furious that it spurned repeated takeover offers from Microsoft, whose withdrawn bid yesterday sent Yahoo's shares plunging.

A group of small investors is trying to amass enough support to oust the board, including the founder and chief executive, Jerry Yang, who it says has lost the "moral authority" to lead the company. Yahoo's biggest shareholders are also putting significant pressure on Mr Yang to change course and come up with a plan to boost the share price beyond the level of Microsoft's final offer of $33, which valued Yahoo at $46bn (£23.3bn).

Many of the investors who remained bullish on Yahoo shares yesterday were pinning their hopes on a deal to outsource its search-based advertising business to the market leader Google, or a massive shares buy-back scheme.

The stock price shed 15 per cent in New York, wiping more than $6bn off the company's value, but at $24.37 it was significantly higher than it was when Microsoft went public with its initial offer on 31 January.

Eric Jackson, a small shareholder whose criticisms of the former Yahoo chief executive Terry Semel at last year's shareholder meeting were the most vocal challenge to the board at that time, is seeking other investors to join a petition to force out the board. He has already formed a pressure group, called Plan B, which represented 140 small investors, and dozens pledged to back his attempted coup.

"We believe the Yahoo board does not have the moral authority to represent our views as shareholders in discussions with Microsoft or any other company who wants to buy Yahoo," Plan B's petition says.

Mr Jackson added: "Boards need to be the eyes and ears acting on behalf of the best interests of the shareholders. Our interests have not been served by this outcome. Hubris and pride got in the way. We need new blood on this board. We need to know that our interests as shareholders are being properly represented."

While the efforts of small shareholders are likely to cause discomfort, Mr Yang's fate hangs more directly on the support of his largest investors, many of whom had demanded Microsoft raise its bid to clinch a deal – and had expected it to do so. They were shocked by this weekend's developments, when Steve Ballmer, the Microsoft chief executive, met Mr Yang and became furious he was still demanding a price of $37 or above, then decided to walk away.

Bill Miller, a portfolio manager at Yahoo's second-largest shareholder Legg Mason, said he would have accepted a deal below the level demanded by Mr Yang – probably at $34 – and called on Yahoo to immediately launch a shares buy-back, using a large proportion of its $2.3bn cash reserves.

"It would be almost incoherent not to do so," he told The New York Times. "You cannot maintain that $33 undervalues your company, have your stock trade below that, and not buy back stock."

Sources at Yahoo are also pointing to the success of an outsourcing trial with Google, where the search giant took over the sale of advertisements that appeared alongside results from Yahoo's search engine. The trial lasted just a week, but could be extended.

If Google takes over all of Yahoo's search-based ad sales, it could add $500m or more to Yahoo's annual cashflows, analysts said yesterday, but a deal would give Google control of 85 per cent of the search ad business and attract scrutiny from competition regulators.

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WSJ: Yahoo CEO Has a New Challenge:

By KEVIN J. DELANEYMay 5, 2008; Page A12
Wall St. Journal

Yahoo Inc. Chief Executive Jerry Yang got what he was hoping for Saturday, say people familiar with the matter, when Microsoft Corp. retreated from its threat to take over the company he co-founded in 1995.

But the 39-year-old Yahoo CEO now faces just as big a test: He needs to convince shareholders and staff that the company's future is just as attractive -- and likely to yield a higher share price -- without a purchase by Microsoft. That challenge is heightened by investor skepticism of
Yahoo's ability to deliver on its promises after several years of underwhelming results and management turmoil. Some staff are weary after the extended period of uncertainty around the company.

Yahoo shares had retreated to their 2003 levels just before Microsoft's offer Jan. 31, and analysts say they probably will fall again Monday on its withdrawal. Many analysts say the financial targets for 2009 and 2010 Yahoo released in March as part of its effort to remain independent were unrealistically high.

Despite the doubts outside the Sunnyvale, Calif., Internet company, Mr. Yang responded to Microsoft's walking away by exhorting his staff to stick to the same strategy. "We should focus our energies on continuing to execute the most important transition in our history," Mr. Yang wrote in an email to employees Saturday that was reviewed by The Wall Street Journal. "How will we do this? By executing against the strategies and priorities we already have in place, and by continuing to deliver indispensable experiences for our communities of users, advertisers, publishers and developers." (Read a blog post by Mr. Yang about the failed deal.)

Mr. Yang outlined those priorities after a roughly 100-day strategic review following his June appointment as CEO. They involved becoming the Internet starting point for the most consumers, becoming a "must buy" for advertisers and becoming an open-technology platform for developers.

People familiar with the matter say Mr. Yang and Yahoo directors were emboldened in their resistance to Microsoft by another key factor: the prospect of a deal to carry search advertising from Google Inc. Citigroup Global Markets analyst Mark Mahaney estimated that such an agreement could increase Yahoo's cash flow by more than $1 billion a year, because Google generates more ad revenue for each search query than Yahoo does. But antitrust officials -- with Microsoft's strong encouragement -- are likely to take a hard look at any such pact.

Yahoo and Google together will account for 83% of U.S. search advertising this year, according to research firm eMarketer Inc. Justice Department officials raised questions about a recent two-week search-ad test between them and expressed concern that a longer-term deal might not be in compliance with antitrust law, according to one person familiar with the matter.

Even if the deal got by regulators, it is unclear whether such an arrangement alone could enable Yahoo to meet its 2009 and 2010 projections, said Needham & Co. LLC Internet analyst Mark May. "We believe some large [Yahoo] shareholders are unhappy with the prospect of outsourcing a meaningful portion of the company's strategic business," he said.

Yahoo also has had talks to possibly merge with Time Warner Inc.'s AOL Internet unit as part of an arrangement in which Time Warner would get a roughly 20% stake in Yahoo, say people familiar with the matter. The two sides have been taking stock of the situation since Microsoft's withdrawal but continue to talk, according to the people.

All of the companies, including Microsoft and News Corp., have been talking to each other on some level in recent weeks, according to people familiar with the situation. News Corp. owns Dow Jones & Co., publisher of The Wall Street Journal. One combination that could come into focus now is Microsoft and AOL. AOL potentially presents a more-willing target for Microsoft.

The Microsoft approach and any fallout from its withdrawal will test the mettle of Mr. Yang, who assumed the unconventional title of Chief Yahoo for years as he let more-seasoned executives run the company. Mr. Yang took the CEO post in June after concerns about the business led some Yahoo directors to decide that former CEO Terry Semel needed to move on, say people familiar with the matter.

It has been a rocky road since then, as Yahoo has continued to grapple with employee departures and turned in financial results that failed to wow investors. In late January, Mr. Yang said the company faced "headwinds" in 2008 and announced plans for roughly 1,000 layoffs.

Now, having failed to reach a deal with Microsoft, Mr. Yang and his fellow Yahoo directors could be vulnerable to a revolt by shareholders. A few pension funds have sued Yahoo and its board, alleging that the directors breached their fiduciary duties by not responding in good faith to Microsoft's unsolicited offer. Activist investor Eric Jackson launched a campaign Sunday on his Web site to get shareholders to withhold their votes from Yahoo's directors at the next annual meeting in protest. "Our interests haven't been served by this outcome," Mr. Jackson, who holds 96 Yahoo shares, wrote on his site. "Hubris and pride got in the way."

A Yahoo spokesman declined to comment on Mr. Jackson's statement.

--Merissa Marr contributed to this article.

Write to Kevin J. Delaney at

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