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AS OF 12/4/2008 1:48AM EST

Icahn, Yahoo Come to Terms in Proxy Battle
By David Worthington, special to Systems Management News

July 22, 2008 — It’s Armistice Day at Yahoo, as the company has negotiated a settlement with activist shareholder Carl Icahn that grants Icahn three seats on its board of directors, marking an end to his campaign for a proxy contest.

Yesterday, Yahoo announced that it has reached an agreement with Icahn ahead of the company's annual general meeting on Aug. 1. Under the terms of the agreement, the board will be expanded from eight to 11 members, with three new members representing the insurgents; one of these seats is reserved for Icahn himself, and his nominees for the remaining pair are subject to the approval of the board’s Nominating and Governance Committee.

Directors Ronald Burkle, Eric Hippeau, Vyomesh Joshi, Arthur Kern, Mary Agnes Wilderotter, Gary Wilson and Jerry Yang are standing for reelection at the meeting. Director Robert Kotick’s seat up is for grabs; he will not be seeking re-election.

Jonathan Miller, currently a partner in Velocity Interactive Group and former Chairman and CEO of AOL, is also in the running for one of Icahn’s seats, according to Yahoo.

Icahn, who owns approximately 5 percent of Yahoo’s common stock, agreed in return to withdraw his hostile slate of names for consideration at the annual meeting and to vote for the board’s nominees at the Aug. 1 shareholders’ meeting.

Prior to the settlement, Icahn had assembled a dissident shareholder dream team that included former Universal Studios executive Frank Biondi, Nextel founder John Chapple, Dallas Mavericks and HDNet owner Mark Cuban, mutual fund manager Brian Posner, and New Line Cinema co-chairman and co-CEO Robert Shaye.

The dissent arose from the perceived failure of Yahoo’s management to negotiate a transaction with Microsoft, which began its attempt to acquire Yahoo with an unsolicited US$44.6 billion takeover bid in late January.

During the course of negotiations, Microsoft offered to raise its initial $44.6 billion bid by $5 billion to $33 per share, but that increase was not enough to satisfy Yahoo’s leadership. Microsoft eventually walked away from the buyout, and by April, CEO Steve Ballmer was threatening to oust Yahoo’s board.

Ballmer was thwarted by what he considered to be a lack of substantive progress toward a transaction, as well as by Yahoo’s decision to embark on a strategic advertising partnership with Google.

In June, Yahoo claimed that Microsoft had abandoned its campaign to acquire Yahoo as a whole, and ruled out selling its search business, in a separate transaction.

A month later, it came to light that Icahn was conducting back-channel discussions with Microsoft. Icahn’s announcement of plans to replace Yahoo’s current board of directors with people open to selling the company to Microsoft was endorsed by Ballmer, who said he was willing to do business with Icahn.

Icahn continues to advocate for the sale of the whole company or the sale of its Search business, according to his remarks in yesterday’s prepared statement.

“I believe this is a good outcome and that we will have a strong working relationship going forward,” noted Icahn. “Additionally, I am happy that the board has agreed in the settlement agreement that any meaningful transaction, including the strategy in dealing with that transaction, will be fully discussed with the entire board before any final decision is made,” he said.

Ultimately, it is impossible to predict what the outcome may be, said Directions on Microsoft lead analyst Matt Rosoff. He suggested that Icahn was unlikely to have accepted a seat on Yahoo’s board without there being something to satisfy him—whether that be a transaction to unlock more value from his shares, or a newfound satisfaction in the validity of the company’s organic growth plans.

Related Search Term(s): Microsoft, Yahoo

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