Big shareholder backs Yahoo board
Yahoo Inc.’s board of directors landed its first endorsement from a major institutional shareholder Friday, giving it momentum in the fight with investor-agitator Carl Icahn over control of the Internet company.
Bill Miller, who as Legg Mason Capital Management’s chief investment officer controls 4.4% of the stock in Yahoo, said he would vote to keep the current board in place instead of backing a dissident slate nominated by Icahn.
Icahn has allied with Microsoft Corp., arguing that the incumbent Yahoo board has been too reluctant to sell the Sunnyvale, Calif., company to the Redmond, Wash.-based software giant.
Miller’s public statement was the first by a fund manager supporting Yahoo management, and it’s especially important because he has wavered in the past over how to vote. Yahoo’s annual shareholder meeting is scheduled for Aug. 1.
“We have met with representatives of the current board and management, including founder Jerry Yang, several times,” Miller said in a prepared statement. “We believe the current board acted with care and diligence when evaluating Microsoft’s offers. We believe the board is independent and focused on value creation for long-term shareholders.”
Legg Mason is the fourth-largest Yahoo investor, according to Bloomberg data. Capital World Investors and Capital Research Global, each divisions of Los Angeles-based Capital Group, are the top two, with a combined 16%. Yahoo co-founder David Filo has about 5.7%.
Capital World’s Gordon Crawford has been critical of the Yahoo board. If his fund sides with Icahn, the dissident group including John Paulson will have at least 18.5% of the declared vote. Filo, Legg Mason and Yang together have about 14%.
The top nine vote-getters will be seated as directors. Shareholders who don’t vote will have their stock counted in favor of the incumbents.
“Yahoo has gotten the upper hand in the strategy of the process,” said a large investor who has yet to decide how to vote. “At this point, it looks like they are likely to hold on to a majority” of the board seats.
Investors said Yahoo’s case was strengthened a week ago when Microsoft and Icahn teamed on a complex proposal that would have sent just Yahoo’s search business to Microsoft. Yahoo rejected the offer, which it said called for the board to change hands.
Microsoft is trying to do everything it can to drive down the price for acquiring Yahoo or its search business. Miller took aim at a major argument put forward by the awkward alliance between Icahn and Microsoft: That the software company couldn’t get a deal done with the current board.
Microsoft said early last week it would negotiate only with a new Yahoo board (although it then proceeded to negotiate with the old board). But Yahoo has argued that an Icahn-dominated board would have little leverage to negotiate the best terms with Microsoft, since Icahn has said little about a Plan B for the Internet company.
Miller agreed that Microsoft shouldn’t get to dictate who is on the other side of the bargaining table.
“If Microsoft wants to acquire Yahoo, it can make the terms and conditions of its offer public,” he said. “If Yahoo shareholders support it, I am confident the board of Yahoo will accept it.”
Finally, Miller called the proxy fight “disruptive” and urged Yahoo and Icahn to negotiate a deal on the board’s composition.
People who speak regularly with those involved in the process agreed that a settlement giving Icahn a limited number of board seats was growing increasingly likely.
Microsoft declined to comment, and Icahn didn’t return a phone call.
The next scheduled step in the saga is the release of Yahoo’s earnings report Tuesday. Analyst Sandeep Aggarwal of Collins-Stewart said the financial results were likely to disappoint Wall Street.
In reporting its own quarterly profit Thursday, Microsoft said online ad spending had been weak, and Google Inc. Chief Executive Eric Schmidt said his company was facing a “more challenging economic environment.” Both companies reported earnings that showed strong growth but fell short of analysts’ expectations.
Microsoft shares fell 6% to $25.86, Google lost 10% to $481.32 and Yahoo rose a penny to $22.45.
Another turning point could come later next week when RiskMetrics group, an influential proxy advisory group, makes a recommendation in the Yahoo board fight.
And, of course, Microsoft could return to the table at any moment with a new offer.
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