Billionaire investor Carl Icahn

DPA | 16 May, 2008
Billionaire investor Carl Icahn officially launched a proxy fight to oust the Yahoo board in a bid to revive Microsoft's spurned deal for the Internet powerhouse.

"It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis," Icahn wrote in a letter to Yahoo Chairman Roy Bostock Thursday.

"I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies and more importantly would be a force strong enough to compete with Google on the Internet."

Icahn nominated a slate of alternative board members, who will seek to replace the incumbent directors July 3 at Yahoo's annual general meeting. If successful, the shareholder revolt could oust Yahoo chief executive Jerry Yang from the company he founded as a graduate student in 1994.

Icahn is on the slate of alternative directors, which also includes Mark Cuban, who sold his online video company Broadcom to Yahoo for $5 billion, Frank Biondi, former chief executive of entertainment conglomerate Viacom, and New Line cinema chief Robert Shaye.

Icahn revealed he has bought $1.3 billion of Yahoo shares since the stock price plummeted following the withdrawal of Microsoft's bid May 3, and said that he could buy as much as $2.5 billion of shares. He held out the offer of a compromise, saying that the Yahoo board could quell the mutiny be reopening negotiations with Microsoft.

"The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft," Icahn, 72, said in the letter. "I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary."

He was supported by Paulson & Co, a New York-based hedge fund, which recently bought 50 million shares of Yahoo Inc during the first quarter and said it plans to support Icahn's dissident slate of directors.

"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 said in a statement.

Paulson's Yahoo stake is currently worth almost $1.4 billion.

The move helped drive Yahoo shares higher Thursday as investors bet on the increased likelihood of an acquisition. Yahoo's shares closed up 2.2 percent, or 61 cents, to $27.75.

Microsoft has already indicated that it has removed Yahoo from its sights, and Icahn has not received any encouragement from the software giant, The New York Times reported.

Microsoft had targeted Yahoo as a way to better challenge the online dominance of Google. But Yahoo chief executive Yang said that the Microsoft offer undervalued Yahoo, which was set to experience strong growth due to a revamped advertising system, he argued.

Yang said Yahoo would only agree to a sale at $37 a share, a price that Yahoo has not seen for at least two years - and which succeeded in driving off Microsoft.

"It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72-percent premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer," Icahn wrote.

The result, he said, was that "a number of shareholders have asked me to lead a proxy fight to attempt to remove the current board and to establish a new board, which would attempt to negotiate a successful merger with Microsoft, something that in my opinion the current board has completely botched".

Investment experts said Thursday that Icahn will face a tough task gathering enough support among shareholders for his rebel bid, especially because Yang and co-founder David Filo own 10 percent of the company.

Icahn is a legendary corporate raider who in just the last year has succeeded in shaking up companies including Blockbuster, Time Warner, Motorola and BEA Systems.

Icahn's threats could be enough to help Yahoo executives return to Microsoft, which according to some analysts remains profoundly interested in striking a deal.

"We think Microsoft may still be interested (in Yahoo) as, in our view, it needs Yahoo to compete vs Google," UBS analyst Ben Schachter wrote in a research note Thursday. "We continue to think a deal will be reached."