As Yahoo Rejects Microsoft, Again, Who's Voting With Icahn?

Yahoo (YHOO) over the weekend announced that it had rejected a new complex takeover bid for the company from Microsoft (MSFT) and investor Carl Icahn.

On Friday evening, Yahoo said, Microsoft and Icahn made a proposal in which Microsoft would have acquired Yahoo’s search business and Icahn would have gained control of the rest of the company. Yahoo said they were given less than 24 hours to respond to the offer, and that Microsoft and Icahn “made clear they were unwilling to negotiate.” Yahoo said its board determined that the offer was “not in the best interests of its stockholders.

Yahoo gave four reasons for rejecting the new proposal:

• The company asserted that its existing business plan and its recent deal with Google (GOOG) “has superior financial value and less complexity and risk” than the Microsoft/Icahn proposal.
• The Microsoft/Icahn proposal “would preclude a potential sale of all of Yahoo! for a full and fair price, including a control premium.” (TTD asks: Yeah, but who would be the buyer?)
• The non-search business would be controlled by Icahn’s director slate “which has virtually no working knowledge of Yahoo’s businesses.”
• The proposal would require replacement of the board and top management team; the company said its board believes that would “destabilize” the company for up to a year while the deal awaited regulatory approval.

In a statement, Chairman Roy Bostock said that Yahoo’s board “remains open to any transaction that delivers full value to our stockholders.” But he adds that “we just do not believe such a transaction should be dictated by Microsoft and a single short-term investor.”

Bostock also said that it was “ludicrous” to think the Yahoo board would agree to such a deal given less than 24 hours to respond. “While this type of erratic and unpredictable behavior is consistent with what we have come to expect from Microsoft,” he said, “we will not be bludgeoned into a transaction that is not in the best interests of our stockholders.””

He also said that Microsoft’s stance that it will not deal with the current management team “is completely absurd and irresponsible given the complexity of the deal – one that requires the removal of half of Yahoo!’s business from Yahoo! and then the integration of it into Microsoft.”

Interesting, Bostock proposes that Microsoft simply make a bid for the whole company. “In rejecting the Microsoft/Icahn proposal, Yahoo not only repeated its offer to sell the entire Company to Microsoft for at least $33 per share, but also offered to negotiate an improved search only transaction. Microsoft rejected both offers,” he wrote.

Concluded Bostock: “Microsoft and Mr. Icahn are trying to dismantle the Company and deliver our search business to Microsoft on terms that would be disadvantageous to Yahoo stockholders. We are prepared to let our stockholders, not Microsoft and Carl Icahn, decide what is in their best interests and we look forward to the upcoming vote.”

That sound dramatic and final: an August 1 showdown at the Yahoo annual meeting. The choice for shareholders boils down to the the devil you know - Jerry Yang - and the other devil you know - Carl Icahn. Given the trouble the company has had under the current devil-in-chief, investors may very well be willing to step into the great unknown, vote in Icahn’s directors, and hope that Microsoft will make one more bid.