Does Yahoo Have an Apple-ish Turnaround Ahead of It?

See Carl Icahn blast Jerry Yang over a compensation plan to fend off a Microsoft (MSFT) bid. See Jerry tell Carl he’s manipulating facts and using allegations from a complaint that has no merit. See Larry’s eyes glaze over.

Anyone else sick of this dueling letter thing?

As a brief catch-up. Carl Icahn blasted Yahoo’s (YHOO) board on Wednesday reiterating what he told CNBC a day earlier. Here’s a snippet of Icahn’s letter, which is based on a class action complaint against Yahoo recently made public.

Microsoft might never be able to trust a CEO and board who, while claiming to be negotiating in good faith, went behind their back and adopted a “plan” which not only sabotages any Microsoft acquisition but went so far as to completely disable its own ability to rescind the “plan” as long as Microsoft’s offer remains pending. Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies. I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board. In my opinion, it will be extremely difficult for Microsoft or other companies to trust, work with and negotiate with a company that would go to these lengths.

Yang responds:

Your letter seriously misrepresents and manipulates the facts regarding the recent events pertaining to Microsoft and Yahoo!. You rely on, as “facts,” a series of unsubstantiated allegations from a complaint filed in a Delaware court which grossly misstate the very clear record and position established by the Yahoo! Board. Let me elaborate: You make reference to our employee retention plan but you significantly mischaracterize its purpose and its effect. In fact, you refer to it as a “Poison Pill” which could not be further from the truth. To set the record straight, the employee retention program is designed to protect the Company’s assets and value during a time of uncertainty. The claim that the plan gives each of Yahoo!’s employees “the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover…” is just plain wrong. In fact, our plan has a “double trigger” which means that in order for an employee to be eligible for benefits under our plan, there would need to be a change of control AND the employee would need to be terminated “Without Cause” or resign for “Good Reason.” That means that in contrast to your assertions, an employee who simply quits his or her job would receive nothing under our plan.

And it goes on an on. There’s a nice little conversation about Yang and Yahoo on the Enterprise Irregulars email list. The short version: Vinnie Mirchandani argues that Yang should tell Icahn to pound sand. Yahoo shareholders (and more than a few casual observers) argue that Yang did a disservice to shareholders (that’s the mild version). What it really comes down to is time horizon–how long are you willing to wait to see if Yang can reinvigorate Yahoo when you could have had at least $31 a share?

It’s an interesting question. After all, Apple (AAPL) , HP (HPQ) and IBM (IBM) were all also-rans at one point. Apple was the most dramatic example of a turnaround. A shareholder’s choices–as we careen toward an Aug. 1 proxy war–are clear:

• Saddle up with Yang hell or high water and bet that Yahoo will be a top dog again.
• Boot the board and align with a guy (Icahn) that will sell the company in a heartbeat (assuming Microsoft will still take it) and probably doesn’t have a time horizon beyond 2008.
• Be wary of the opportunity costs involved, take the money you have in Yahoo and find a new opportunity.
• Stay on the sidelines and enjoy the show.

The big question: Does Yahoo have an Apple-ish turnaround ahead of it?

Comments

[bato sa bato:]

If Mr. Yang turns this company around like apple, it'll be ONE OF THE GREATEST STORY EVER TOLD as Mr. Kudlow would say. MORE POWER TO YHOO BOD AND YANG!!! COME HELL OR HIGH WATER, I'M WITH YOU !!!!!!! (not).

2008 Jun 05 05:26 PM

[Susan M.:]

I'm surprised at Icahn's ignorance w/regard to Yahoo's Retention Plan. Retention Plans are used quite frequently during M&As, and they are often put in place by the companies on both sides of the table. As an ex-Investment Banking HR Pro, I've lived through many M&As myself, and I would think that anyone in the business of M&As would be better educated on such plans.

A Retention Plan provides employees with what is more commonly known as a "Stay Put Bonus", which basically rewards the "talent" for not jumping ship amidst the turmoil and confusion that often comes during a takeover process. If an employee quits w/in X months of the merger, they forfeit the bonus. Hence the name RETENTION.

Yahoo did the right thing by putting one in place, knowing that many Yahoo employees would rather jump ship than work for MSFT.

After Icahn's phone call w/Fast Money last night, it's no wonder the stock tumbled today. I know he's supposed to be incredibly intelligent, but you'd never know it from that call. Looks like he may be quickly losing ground in his battle, and justly so.

I say Kudos to Jerry Yang for withstanding all the mud being slung in his direction these days. People need to cut through all the BS in the media, etc. in order to recognize that the Yahoo board really IS operating w/the stockholders in mind. If you put Icahn and his buddies in charge of a company like Yahoo, you can kiss the old Yahoo goodbye....talent and all.

2008 Jun 05 06:41 PM

[Susan M.:]

Oh yeah, and it's probably worth mentioning that I/we have 20 different stocks spread out over 3 different portfolios. Every one of them went up big-time today except for 1. Yahoo! Not a problem, though -- we shorted it and happily bought to cover today (Thanks Carl). I'm so glad we're not involved with that mess anymore!

2008 Jun 05 06:49 PM

[yankini:]

Icahn knows about retention plans but his followers do not. They are sheep (mass psychology) and therefore believe whatever he says. May be too busy or lazy even to read up. He says whatever makes them believe Yhoo did a bad job by not selling itself. It is so sad that we think educated people make good decisions...

2008 Jun 05 07:32 PM

[citetez:]

In response to you question: No, they do not have an "Apple-ish" turn around in their future as long as Yang is around. Notably IBM, Apple and HP all turned around only when disfunctional management was replaced.

2008 Jun 05 09:39 PM

[David Lentz:]

Neither Jerry Yang nor Carl Icahn (and certainly not Steve Balmer) is a Steve Jobs. There's not a glimmer of genius in the lot of them. The best that can happen for YHOO stockholders is that Icahn will sell the company to Microsoft, who will run it into the ground and completely destroy what Yang has built -- but the stockholders would profit.

The only chance that Yahoo has for an Apple-ish future is to continue to go it alone and somehow manage to out-google Google. And the odds of that happening are even less than those of Apple managing to pull out of its death spiral when Jobs returned.

Hey -- miracles happen. But all that Carl Icahn is interested in is making a quick buck from selling YHOO to MSFT.

2008 Jun 06 09:08 AM

[Yahoo! Empl...:]

As an employee of Yahoo!, I don't see the retention package as incentive to leave. What it did do was allow me to stop worrying about whether or not I would have a job when/if MS were to acquire us. Nothing more. I, and almost everyone who works here, LOVE this company. I don't want to leave Yahoo! if MS takes over! But it's nice to know if I am let go due to duplication in my job or my office is closed down, that I will be compensated and have ample time to find a new job without losing my house.

2008 Jun 06 02:06 PM

[Another Y! ...:]

@ Yahoo! Employee: I completely agree. I'm a relatively recent hire (less than a year), so even for someone without as many emotional attachments to the company, the retention policy made me feel exactly the same way. I don't view it as an golden parachute -- I view it as an insurance policy. I firmly believe in the company's prospects and am totally open to a MSFT acquisition, but it's nice to know that whatever happens, I don't need to worry about my short term financial prospects.

Oh, and for those wondering if I'm just a slacker milking this new job security the retention policy kind of provides, I graduated from a top 3 business school and was rated as a top performer in my first review.

2008 Jun 07 10:17 PM