Icahn Keeps the Heat on Yahoo!

Carl Icahn appears to be in it for the long run in his proxy fight with Yahoo Inc. (YHOO). The dissident investor filed a revised preliminary proxy statement  on Thursday in which he replaced one of the nine candidates he is nominating for the Internet company's board of directors.

There's been speculation that Yahoo! shareholders are reluctant to vote for his slate of candidates, especially since, short of selling it to Microsoft Corp. (MSFT), he has offered few details about how he would run Yahoo!. That point was reinforced Friday by one of Yahoo!'s largest shareholders, Legg Mason. Icahn could still bow out of the proxy fight, though maintaining his nine-member slate suggests he'll follow through on his pursuit for full board control.

Icahn could also cut bait and run a minority slate of candidates, something we brought up before, which might boost his chances of winning the support of proxy advisory services. While the proxy firms are unlikely to recommend that shareholders vote for his entire slate, they might well suggest that investors their votes and support as many as four of Icahn's candidates.

There is recent precedence for such a recommendation. Risk Metrics (formerly ISS), the most influential of the advisory firms, earlier this month urged shareholders of railroad company CSX Corp. (CSX) to support four of five candidates nominated by a dissident shareholder. Of course, Icahn is being more ambitious in trying to replace all nine Yahoo! board members, rather than a minority, but Risk Metrics could still recommend voting in favor of some of his candidates.

By coincidence, the only board member from the dissident slate in the CSX proxy contest that Risk Metrics did not recommend was Gary Wilson, a private investor who just happens to sit on the board of directors at Yahoo!. Risk Metrics did not give a reason for not recommending Wilson.

Because shareholders must under securities rules choose whether to vote on Yahoo!'s or on Icahn's proxy card, the procedure for splitting the vote would be to vote for four of Icahn's candidates and leave the other nominees blank; alternatively, a shareholder could vote for five of Yahoo!'s candidates and leave the other four blank. If the advisory services do recommend voting for some of Icahn's candidates it would put more pressure on Yahoo! to reach a compromise ahead of the Aug. 1 proxy vote.

Icahn has a good chance of gaining some seats on Yahoo!'s board. Shareholders remain upset with Yahoo! for the bungled negotiations with Microsoft and will be looking to send a message to CEO Jerry Yang. With some representation on the board, Icahn would have an easier time pursuing alternatives for Yahoo!. A move by shareholders to elect a few of his candidates also would send a message to Yahoo! directors that they must take investors' views seriously, or face a deluge of lawsuits.

Comments

[Mit]

Well,

I think this is the time when Icahn should sell all the shares of stock he has now.
Yahoo cannot be a part of Microsoft!

[techy]

i am sorry mit, but as a shareholder of yahoo....what have we gained since the last three years?

so whats wrong if MS has better plans for yahoo than its current owners who dont even care about shareholders(if they really think that the company is worth more than $33, why dont they use their personal billions and buy yahoo shares.....those blood-suckers only own around 5-10% of yahoo..., they are having party time on public money)

[techy]

btw i appreciate activist shareholders....becaus... small fish like us are voiceless....all we can do is take loss and sell our shares if we dont like a companies direction after waiting for years..

but thanks to Icahn kind of people who try to ruffle the managment to pay attention to the real owners of the company.

[sm]

Yahoo's current management (Yang, Becker, Patel, and Schneider..) and Board of Directors have not performed well. And, that is putting it mildly. Reorganizations are never a solution but a symptom of bigger problems. Digital Equipment Corporation went through many reorganizations before it went under. Replacing this management and the Board and selling the company to MSFT may be the best alternative. I do think $33.00 is very low and the price should be higher once the management is replaced.