Dissident Yahoo shareholder Carl Icahn and Microsoft have been talking to each other (as has everyone else involved in a possible Yahoo deal, including Yahoo and AOL over the weekend). In a letter to shareholders, reproduced below, Icahn notes that he and Microsoft CEO Steve Ballmer have been discussing possible transactions over the past week, and that Ballmer ” made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo! . . . immediately.”
Microsoft is throwing its weight behind Icahn’s proxy battle, going so far as to signal that an Icahn-controlled Yahoo is the only one that it is willing to restart negotiations with. Icahn says Microsoft won’t enter into any deal with the current Yahoo board because of the risk that the company will be “mismanaged” in the nine months or more it could take to finalize a deal of this size. He states:
Steve made it abundantly clear that, due to his experiences with Yahoo! during the past several months, he cannot negotiate any transaction with the current board.
In a coordinated statement it just released, Microsoft confirms that while it has “concluded that we cannot reach an agreement” with the current board and management at Yahoo, and that “after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!”
Microsoft is basically telling the market that the only way a Microsoft deal can be revived is by voting the current board out. Yahoo’s stock is up 10 percent this morning on the news to $23.50, last time I checked.
Icahn makes it sound like he and Ballmer are closer than two teenage Best Friends Forever, talking on the phone for “as long as an hour,” gossiping about what they plan to do to Yahoo. But Microsoft is not guaranteeing anything, just that it would talk to Yahoo again if a new board is elected that is more open to a deal than the current one. It would be Microsoft’s fiduciary duty to do so anyway. Ballmer just likes slapping Yahoo around. He is not really committing to anything.
Yahoo, for its part, plans on arguing at its shareholder meeting that selling its search business to Microsoft makes no sense. But one of its counterpoints to Icahn’s original five-point plan, that Microsoft is no longer interested in a full acquisition of Yahoo, is now officially invalid.
Update: Yahoo responds, saying these announcements are silly because Yahoo’s current board is ready to negotiate a full sale of the company with Microsoft. Here is the full statement (I’ve bolded parts of it for emphasis):
Yahoo!’s Board of Directors continues to stand ready to enter into negotiations with Microsoft Corporation for an acquisition of Yahoo!. Indeed, as recently as June, Yahoo!’s independent directors and management approached Steve Ballmer about just such a transaction, only to be told that Microsoft was no longer interested even in the price range which they had previously proposed. Now Mr. Ballmer and Mr. Icahn have teamed up in an apparent effort to force Yahoo! into selling to Microsoft its Search business at a price to be determined in a future “negotiation” between Mr. Icahn’s directors and Microsoft’s management. We feel very strongly that this would not lead to an outcome that would be in the best interests of Yahoo!’s stockholders. If Microsoft and Mr. Ballmer really want to purchase Yahoo!, we again invite them to make a proposal immediately. And if Mr. Icahn has an actual plan for Yahoo! beyond hoping that Microsoft might actually consummate a deal which they have repeatedly walked away from, we would be very interested in hearing it.
Read both Microsoft’s and Icahn’s coordinated statements after the break:
Here is Microsoft’s statement:
In the past week we have had the opportunity to discuss with Carl Icahn the prospects for a possible agreement between Microsoft and Yahoo!.
Despite working since January 31 of this year, as well as in the early part of last year, we have never been able to reach an agreement in a timely way on acceptable terms with the current management and Board of Directors at Yahoo!. We have concluded that we cannot reach an agreement with them. We confirm, however, that after the shareholder election Microsoft would be interested in discussing with a new board a major transaction with Yahoo!, such as either a transaction to purchase the “Search” function with large financial guarantees or, in the alternative, purchasing the whole company.
As Mr. Icahn notes in his statement today, it would be premature to discuss at this time important details such as the price or other terms of a possible transaction. We respect the right of Yahoo!’s shareholders to determine the destiny of their company, and we do not intend to engage in ongoing commentary on these issues in advance of Yahoo!’s shareholder meeting.
As we explained on June 12 when Yahoo! announced an agreement with Google, we believe that our proposed search acquisition and partnership would have delivered superior value to Yahoo!’s shareholders and the marketplace as a whole. We have not changed our position, even as we continue to move forward with our own online search and advertising offerings. We therefore welcome interest by Mr. Icahn in pursuing this and other discussions.
While of course there can be no assurance of a future transaction, we will be prepared to enter into discussions immediately after Yahoo!’s shareholder meeting if a new board is elected.
Here is Carl Icahn’s letter to Yahoo shareholders that Microsoft is responding to:
Carl C. Icahn
ICAHN CAPITAL LP
767 Fifth Avenue, 47th Floor
New York, NY 10153July 7, 2008
Dear Yahoo! Shareholders:
During the past week I have spoken frequently with Steve Ballmer, CEO of
Microsoft. Several of our conversations have lasted as long as an hour. Also,
a few of our discussions have taken place while other top executives, such as
Kevin Johnson, participated. Our talks centered on the industry in general
but, more importantly, on how Yahoo! and Microsoft can do a transaction
together. Steve made it abundantly clear that, due to his experiences with
Yahoo! during the past several months, he cannot negotiate any transaction
with the current board. His logic is simple. If and when a transaction was
consummated, Microsoft would be guaranteeing a great deal of capital at
closing. However, a transaction could take at least nine months and perhaps
longer to obtain regulatory clearance in the U.S., Europe, and elsewhere.
During that period, if the current board and management team of Yahoo!
mismanage the company (and their recent track record is far from reassuring),
Microsoft would be putting its money at risk and a great deal could be lost.For example, in a transaction to purchase the whole company, a very large
amount of capital would be due at closing. Even in an “alternate” transaction,
where just the “Search” assets were purchased, large guarantees would have to
be made and, again, large sums could be lost if the company was mismanaged.
Microsoft perceives this risk may be quite high with the current board and
management in place. However, Steve made it clear to me that if a new board
were elected, he would be interested in discussing a major transaction with
Yahoo!, such as either a transaction to purchase the “Search” function with
large financial guarantees or, in the alternative, purchasing the whole
company. He stated that Microsoft would be willing to enter into discussion
immediately if the new board that has been nominated were elected. While there
can be no assurance of a future transaction, as many of you know, I have
negotiated successfully a large number of transactions over the past years. If
and when elected, I strongly believe that in very short order the new board
would, subject to its fiduciary duties, be presenting to shareholders either a
purchase offer for the whole company or a very attractive offer to purchase
“Search” with large guarantees. I hope to continue to be speaking to Steve
over the next few weeks; however, since I do not as yet represent the Yahoo!
board, both Steve and I do not wish to get into details over price, or even
which of these transactions makes the most sense.Much has been said about how badly the Yahoo! board has “botched up”
negotiations with Microsoft over the past months. There is no need to keep
pointing out the mistakes I believe Yahoo! made by not immediately taking a
$33 offer made by Microsoft. But one thing is clear — Jerry Yang and the
current board of Yahoo! will not be able to “botch up” a negotiation with
Microsoft again, simply because they will not have the opportunity.Our company is now moving toward a precipice. It is currently losing
market share in its “Search” function; our current Board has failed to bring
in a talented and experienced CEO to replace Jerry Yang and return Jerry to
his role as Chief Yahoo!, and currently it is witnessing a meaningful exodus
of talent. It is no secret that Google (which hired a great operator as CEO)
continues to dramatically outperform Yahoo!. According to publicly available
information, Google’s income from operations grew 59% per year over the last
two years while Yahoo!’s shrank 21% per year. However, none of the above has
caused the Yahoo! board to hesitate in paying themselves $10,000 per week. IT
IS TIME FOR A CHANGE.If elected, I have little doubt that the new board, subject to its
fiduciary duties, will do what the current board will not do, i.e.,— Immediately start negotiation with Microsoft to sell the whole company
or, in the alternative, sell “Search” with large guarantees.— Move expeditiously to replace Jerry Yang with a new CEO with operating
experience.Sincerely yours,
CARL C. ICAHN
(Photo by Sam Lustgarten).
icahn needs to just be merry and just retire
he is what 70+
and a billionaire
i could understand if he was 50ish but dude you are 70+
just be a happy old man
i never understood rich guys in their 70-90+ that wanted to make more money
Icahn should better talk also about other topics. Best people are running from Yahoo! It is a sinking ship and this process has to be stopped. I can not believe that shareholders just watch it going down. If MS takes over Yahoo, why should they do some harm to it? Whereas they are much more interested in getting their money back than the currenct management which seems to be in a shock since 3 months or so.
—
http://www.speed.io - Worldwide broadband speedtest 2.0
withteh current board and managment at Yahoo, it never been able to reach an agreement” with “current management and Board of Directors at Yahoo!,”
Maybe worth reading through the article before you press post Erick.
I think Yahoo! needs a new board all right. They should have took the first offer. Now, I would tell Microsoft where to stuff it and do a deal with AOL. For my own selfish reasons I would sure like to keep the big three advertising platforms - Google, Yahoo! and Microsoft (well Microsoft could be big). Microsoft has enough moola to get something going sooner or later.
I’m not sure what Mr Icahn knows about the internet. I am sure he knows a lot about investing and shareholder value. However Yang is way too emotionally involved and is kidding himself if he thinks sabotaging a Yahoo sale to Microsoft is best for Yahoo shareholders. Yahoo has fumbled and lost the ball permanently. get over it. Sell to the dark side and move on.
Wish good luck to Mr Carl Icahn for saving Yahoo from the hands of self serving executives. Yahoo execs have failed in their fiduciary duty to get the maximum returns for their shareholders. Some external power is needed to save Yahoo. They are not taking the right path in their business. Letting Google in is not good for their business. Good luck Mr Carl Icahn I believe that collective wisdom of Yahoo shareholders is good for yahoo in the long term. Yahoo executives must come out of their comfort zone., swallow the bitter bill for survival of their company. Marriage with Microsoft will not let Yahoo down ( but career of yahoo execs are in danger for sure).
Yahoo! needs a new board . It’s not possible to go ahead alone
Yes, shareholders only care about the value of the share, but a company like Yahoo! is much more than just shares. Yes, the best way to ‘increase share prices’ is to sell Yahoo! to Microsoft who will gobble up the ‘money making’ parts and put rest of it in the ‘Recycle bin’.
But, to create real value, something that’ll benefit to internet users world-wide, I don’t think its the best thing to do.
I don’t see how this makes any sense at all. Jerry is extremely well-liked internally, especially on the engineering side. If Ballmer is afraid of the company falling apart during regulatory approval, forcing Jerry out is the last thing he wants to do. The engineering side of the company is mostly intact still, but if Jerry is pushed out, it is going to self-destruct.
Yahoo is a good company, its not loosing money and it has a huge asset base, $13.4 billion assets & $2.9 billion liabilities .. its true that the profit was declining but its going up again .. i think this company deserves a better situation .. its going through some tough stuff but at the end of the day it’ll just pass it.
Yahoo is still ranked Number 1 in Alexa ..
I agree with Tabitha. Its tough to let your company go but there comes a time. Let it go, take time out then bury yourself in your next bright idea. With theat kind of money, you can have 47 bright ideas and not dent your bank account! I’m sure Jerry Yang would be a much happier man (unless theres a lawsuit).
Yahoo stock is up 8%…tried to recover some of the lost ground post the board’s major snafu. Both companies need to do something transformative when it comes to search. Google has happily ate most of their lunch (about 75% when you consider ww search). I am not sure 1 +1 =3 but I do know that the equation with which the two currently operate under as separate entities involves subtraction of market cap!
This deal is not very imminent.Ican should concentrate on tther issues that are daunting yahoo rather on this single issue.I can has incvested a lot of money on yahoo ,so he should be caring about it.
There are a lot of problems faced by yahoo at this time.Yahoo does not offer a good semantic research
Yahoo has a lot of managerial problems.Good people are runing from yahoo.
when was the last time Icahn ran a successful company? he’s raided plenty, but when he tried to get into operations w/TWA he botched that one pretty good. this guy is a rape & pillage companies type. but alas, current yahoo team is no match for him given that shareholder greed will rule the day here.
note however microsoft hypocrisy in a simple statement:
“and we do not intend to engage in ongoing commentary on these issues in advance of Yahoo!’s shareholder meeting”
isn’t that exactly what they’re doing by issuing this letter in advance of the Yahoo! shareholder meeting?
Nice…
MS just trying to buy some market share!
Here is an idea, fix your search!!!! Not buy a new one!!!
Web 3.0 where are you? 2.0 was a colossal mistake!!!!
Beware of the power of stupid people in large numbers!
tis all
As much as I do not like Yahoo! (mainly because how they illegally handed over info about dissidents in China–at least according to Chinese law), I do not want to see the web search arena descend into a duopoly.
Yeah, it might benefit Yahoo! share holders in the short run, but the idea of an eternal Google-Microsoft war online does not exactly appeal to me.
Erick,
This was a hilarious article - particularly your allusion to “Best friends forever.” Well written and informative. I think the conclusion is that any magnitude of deal is completely possible if the current Yahoo board is replaced. Yahoo selling their search business to Microsoft makes absolutely no sense. Where would that leave yahoo’s focus….. Shine? …
I predict a major deal will happen with the net 3 months… http://www.readtheanswer.com/index.php?RTA=web2
Mr. Icahn to Mr. Yang: checkmate.
Yahoo overplayed their hand and now they’re screwed. I just hope Microsoft doesn’t mess up the good parts of Yahoo.
10,000/week = 40,000/month = 480,000/year.. holy cow!
Hah, the more people like Icahn get involved the more “old business” any development will become. Icahn is a whiner who always nags the board but keeps his shares regardless of any developments (see: Motorola 2007). He’s a paper tiger that MS fanbois would love to see save their bacon.
“Pleease Carl make our stock price move!”
Great post Erick!
For those who haven’t looked into who Carl Icahn is (tit bits from around the web):
http://www.jogtheweb.com/reade.....rackId=166
Everyone knew we hadn’t heard the last of the MS/Yahoo saga!
Well… I think now Yahoo and MS will do that deal… and good for MS, because the Yahoo stocks are cheaper than last time…
I have been saying Microsoft will get this deal done for a long time. Yahoo is a good property to own regardless of the brain drain. BUT, let’s get this thing done.
Steve, what are you sitting on your pile of money for anyway? You are like King Midas. Time to step out from behind Bill and get your feet wet. Let’s go! The longer you take, the harder it is going to be to integrate. You can’t tell me there isn’t any scorched Earth parties going on over at Yahoo.
Icahn just want to make money. Microsoft just want to rip a part Yahoo! to get their search business. I think Yahoo! is doing good under the circumstances. Sure they might need a new CEO and so on, but - nevertheless - I think the do it best without Microsoft and Icahn. If Microsoft/Icahn “wins” this battle it will be a disaster. Ichan won’t care about either Yahoo! or Microsoft as soon as he have his money. And Microsoft, well, we all know how they handle the web …
“Yahoo execs have failed in their fiduciary duty to get the maximum returns for their shareholders. ”
I think people who spew this statement miss the fact that shareholders can easily sell their shares. Majority shareholders of Yahoo do not care enough to vote against the execs.
Remember a corporation is controlled by the shareholders. Shareholders majority can overrule any board or execs.
Ah Icahn, you swindler. Let’s just hope you did your math right:
http://www.twistedpine.org/sea.....sodeNum=29
Icahn has a proven track record when it comes to turning around ailing companies. He obviously sees synergy oppurtunites in a Yahoo Microsof merger.
Lets face it, if Carl Ichan can’t figure out how to fix this mess, then nobody can..let alone Jerry Yang.
Jerry Yang has to realize that Ichan is the only shot Yahoo has got to survive.
Carving out search will really hurt Yahoo’s display ad business long-term.
It’s ironic, but it’s in Yahoo’s interest to keep search and display advertising on one platform. The impact of display ads today is hard to measure so they can only sell impressions. But online vendors with both search and display ads (Google, Yahoo, Microsoft) plan to track what display ads users see over time and then correlate that with search queries. That will make it possible monetize display ads with a higher price. Most of the brand equity and awareness they create today gets harvested by search ads. But Yahoo is under such pressure to do a deal they are willing to mortgage this future synergy. If they weren’t so incompetent at telling their story that might be different.
http://techstrategypartners.wo.....g-carcass/
@Stupid people
Share is not a random number. It is a near perfect approximation of net long term and short term worth of a company. Here you notice a unambiguous pattern - share prices go up when a deal with Microsoft is more likely and vice versa. Which means net value ( long term and short term combined) of Yahoo increases with merger. How can a legitimate company increase its value - only by delivering new or better services to its customers. So shareholders think that Yahoo with Microsoft is better than Yahoo alone. Anyone can sell their shares. But they can sell it at a higher price only if the buyer thinks Yahoo is worth more. If you think that market is always stupid but you are always smart, then think again.
“Remember a corporation is controlled by the shareholders. Shareholders majority can overrule any board or execs.” - Yes, but they should give board a chance before loosing hope.
@Anurag
Yahoo is not into philanthropy business. They have to make money to survive. They have more responsibility to their share holders than customers. Forget the greedy bunch, think about the retired people and pensioners who invested in Yahoo. One cannot simply take public money and bask in luxury like a private company. They can stay in business only if they can monetize their innovative services and generate value for their investors. It is a commitment that comes as part of package when you go public.
@27: They can’t get the maximum returns if that comes from the whole company being sold, and the board uses every dirty trick in the book to prevent that happening. They can only sell at the public market price. If a takeover’s in the offing the market price will approach the takeover price, but will still be lower to reflect the risk that the takeover won’t happen. If the board are being intransigent idiots, that risk will be greater and the market price will be even lower. Shareholders get screwed either way.
Shareholders should be able to control a corporation, but in reality boards like Yahoo’s treat shareholders as an inconvenience and not as a master. Icahn’s investment strategy often seems less like maximising returns and more like a personal crusade against such corrupted boards. Which is fair enough, since it’s his money. I personally incline towards the ‘dump the stock and let them drown’ philosophy, but I have far less money than Icahn, so decide for yourself who’s right.