Icahn Launches Proxy Fight for Yahoo, Nominates Slate Including Mark Cuban

As expected, billionaire Carl Icahn launched his proxy war to turn over Yahoo’s board of directors and one of his nominees is Mark Cuban, who sold Broadcast.com to Yahoo and then took those funds to buy the Dallas Mavericks.

Just for entertainment value I may buy a share just to vote for Cuban.

In a letter to Yahoo Chairman Roy Bostock (see below), Icahn said the board was “irresponsible” in turning down Microsoft’s bid. The board was also hiding “behind management’s more than overly optimistic financial forecasts.”

Money quote:

I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

Icahn also noted that he bought 59 million shares of Yahoo.

In a nutshell, Icahn said Yahoo’s board was “irrational” so he wants a new one. He nominated 10 directors. Icahn will be joined by Keith Meister, Cuban and former Viacom CEO Frank Biondi Jr. Other names–Lucian Bebcuk, John Chapple, Adam Dell, Edward Meyer, Brian Posner and Robert Shaye–were roughly as expected.

All 10 Yahoo directors are up for re-election.

Will Icahn’s slate win? It’s unclear. A Yahoo shareholder has the following choices:

• Trust Icahn’s takeover and hope he can control Yahoo and then sell to Microsoft.
• Keep the status quo because Microsoft may not come back.

Here’s Icahn’s letter:

Carl C. Icahn
ICAHN CAPITAL LP
767 Fifth Avenue, 47th Floor
New York, NY 10153

May 15, 2008

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Mr. Bostock:

It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

During the past week, 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. I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies. I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock. The biographies of the members of our slate are attached to this letter. A more formal notification is being delivered today to Yahoo under separate cover.

While it is my understanding that you do not intend to enter into any transaction that would impede a Microsoft-Yahoo merger, I am concerned that in several recent press releases you stated that you intend to pursue certain “strategic alternatives”. I therefore hope and trust that if there is any question that these “strategic alternatives” might in any way impede a future Microsoft merger you will at the very least allow shareholders to opine on them before embarking on such a transaction.

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.

Sincerely yours,

CARL C. ICAHN

And here’s Icahn’s board nominees (shortened bios):

• Lucian A. Bebchuk: The William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School. Bebchuk is also a Research Associate of the National Bureau of Economic Research and Inaugural Fellow of the European Corporate Governance Network.
• Frank J. Biondi, Jr.: Former CEO of Universal Studios and Viacom.
• John H. Chapple: President of Hawkeye Investments LLC, a privately-owned equity firm investing primarily in telecommunications and real estate ventures frequently working in conjunction with Rally Capital LLC. Prior to forming Hawkeye, Chapple worked to organize Nextel Partners, a provider of digital wireless services in mid-size and smaller markets throughout the U.S. He became the President, Chief Executive Officer and Chairman of the Board of Nextel Partners and its subsidiaries in August of 1998.
• Mark Cuban: Owner of the Dallas Mavericks. Co-founder of HDNet. He also founded Broadcast.com in 1005 and sold it to Yahoo in July 1999.
• Adam Dell: Managing General Partner of Impact Venture Partners, a venture capital firm focused on information technology investments.
• Carl C. Icahn: Activist shareholder bar none. The entire bio: Mr. Icahn has served as chairman of the board and a director of Starfire Holding Corporation, a privately-held holding company, and chairman of the board and a director of various subsidiaries of Starfire, since 1984. Since August 2007, through his position as Chief Executive Officer of Icahn Capital LP, a wholly owned subsidiary of Icahn Enterprises L.P., and certain related entities, Mr. Icahn’s principal occupation is managing private investment funds, including Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II L.P. and Icahn Partners Master Fund III L.P. Prior to August 2007, Mr. Icahn conducted this occupation through his entities CCI Onshore Corp. and CCI Offshore Corp since September 2004. Since November 1990, Mr. Icahn has been chairman of the board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P. Icahn Enterprises L.P. is a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. Mr. Icahn was chairman of the board and president of Icahn & Co., Inc., a registered broker- dealer and a member of the National Association of Securities Dealers, from 1968 to 2005. Mr. Icahn has served as chairman of the board and as a director of American Railcar Industries, Inc., a company that is primarily engaged in the business of manufacturing covered hopper and tank railcars, since 1994. From October 1998 through May 2004, Mr. Icahn was the president and a director of Stratosphere Corporation, the owner and operator of the Stratosphere Hotel and Casino inLas Vegas, which, until February 2008, was a subsidiary of Icahn Enterprises L.P. From September 2000 to February 2007, Mr. Icahn served as the chairman of the board of GB Holdings, Inc., which owned an interest in Atlantic Coast Holdings, Inc., the owner and operator of The Sands casino in Atlantic City until November 2006. Mr. Icahn has been chairman of the board and a director of XO Holdings, Inc., a telecommunications services provider, since February 2006, and of its predecessor from January 2003 to February 2006. Mr. Icahn has served as a Director of Cadus Corporation, a company engaged in the ownership and licensing of yeast-based drug discovery technologies since July 1993. In May 2005, Mr. Icahn became a director of Blockbuster Inc., a provider of in-home movie rental and game entertainment. In October 2005, Mr. Icahn became a director of WestPoint International, Inc., a manufacturer of bed and bath home fashion products. In September 2006, Mr. Icahn became a director of ImClone Systems Incorporated, a biopharmaceutical company, and since October 2006 has been the chairman of the board of ImClone. In August 2007, Mr. Icahn became a director of WCI Communities, Inc., a homebuilding company, and since September 2007 has been the chairman of the board of WCI. In December 2007, Mr. Icahn became a director of Federal-Mogul Corporation, a supplier of automotive products, and since January 2008 has been the chairman of the board of Federal-Mogul. In April 2008, Mr. Icahn became a director of Motricity, Inc., a privately-held company that provides mobile content services and solutions. Mr. Icahn received his B.A. from Princeton University.
• Keith A. Meister: Icahn’s right-hand man and Principal Executive Officer and Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion.
• Edward H. Meyer: CEO and Chief Investment Officer of Ocean Road Advisors, Inc., an investment management company.
• Brian S. Posner: Private investor. From 2005 through March 2008, he served as Chief Executive Officer and co-Chief Investment Officer of ClearBridge Advisors LLC (and its predecessor company, CAM North America), an asset management company based inNew York with approximately $90 billion in assets and a wholly owned subsidiary of Legg Mason Inc.
• Robert K. Shaye: Co-Chairman and Co-CEO of New Line Cinema. As the Founder of New Line Cinema and a filmmaker himself, Robert Shaye has spent more than 40 years developing and distributing films that reflect a wide array of cultural movements, creating new paradigms for the motion picture business, and most importantly, entertaining millions of moviegoers.

Comments

[Egg]

Icahn's first act as Yahoo! Chairman:

Takeover MOT for $20/ share.

[MuddlingInvestor]

I think of buying July puts on Yahoo. Price is too high. There is a possibility that Microsoft will want Yahoo! after proxy fight, but only if Ballmer interested in destruction of Yahoo!. If Microsoft wants working Yahoo, proxy fight is not the way to go. Many investors, and Icahn most of all, don't understand that the only real Yahoo! assets are workforce and knowhow. Eyeballs may disappear in a flash (remember Hotmail?).

Looks like another great Icahn plan for tech companies. Like Motorola: sell cellphone division. Great idea, the only problem that there are no buyers. Oops!

[MuddlingInvestor]

I also want to add that with this board, Yahoo! can close office. Nobody from Silicon Valley! Only Mark Cuban knows something about Internet. They have no idea about this business. If that board is elected, they only need to hire CEO from entertainment industry. Wait, there was one at Yahoo! until lately...