Yahoo gives Icahn 3 seats on its board
Yahoo Inc. reached a cease-fire with billionaire activist Carl Icahn on Monday by giving him and his allies three board seats, ending a bruising proxy fight and buying the Internet company more time to figure out its turnaround strategy.
Icahn’s campaign fell short of forcing Yahoo to fire Chief Executive Jerry Yang or sell part or all of the Sunnyvale, Calif., company to Microsoft Corp.
Now Yang, the central figure in the drama that has captivated the Internet industry, will have to make good on his pledge to revive the struggling company he founded, analysts say.
With more than $1.5 billion spent on a 5% stake in Yahoo, Icahn will probably take an active role on the board. Analysts expect him to use his board seat to pressure Yang to pursue bold strategic changes and revive growth after a long decline that made Yahoo vulnerable to Microsoft’s unsolicited takeover attempt this winter.
Icahn also has a possible successor to Yang in the wings: Former AOL Chairman and CEO Jonathan Miller is expected to take a seat on Yahoo’s board at the urging of Icahn and Yang. Yahoo will choose the third Icahn representative from the slate of candidates he submitted for the company’s Aug. 1 board meeting.
Icahn had spent the last two months campaigning to replace Yahoo’s board, tapping into shareholder anger over the collapse of merger talks between Yahoo and Microsoft.
He believed he had a real shot at seizing control of Yahoo but decided to broker the settlement after he was unable to recruit a credible operating team or get investor sentiment to swing his way, according to two people familiar with his thinking. They spoke on condition of anonymity because the talks were confidential.
Miller and former Yahoo President Dan Rosensweig turned down Icahn’s offer to run Yahoo if he gained control of the company, the people said.
“Carl’s the ultimate pragmatist. When he felt he didn’t have the full win, he went for what he could get,” a person close to Icahn said.
Although he struck a conciliatory tone in a statement released by Yahoo, Icahn underscored Monday that he still believed a sale of all or part of the company was in the best interests of shareholders.
A key turning point in negotiations came Friday, when Legg Mason Capital Management’s chief investment officer, Bill Miller, became the first major Yahoo shareholder to publicly say that he would support Yahoo’s slate of directors. He urged the two sides to reach a compromise. Legg Mason controls 4.4% of Yahoo shares.
The talks turned serious on Sunday, with all-night negotiations leading to an agreement early Monday morning. Icahn had wanted four board seats; Yahoo wanted to give him two.
A Yahoo spokesman declined to comment.
Five-year board veteran Robert Kotick will surrender his seat. He is CEO of video game publisher Activision Blizzard Inc., recently created by the merger of Activision and Vivendi Games. In an e-mail, Kotick said he left the Yahoo board to “focus on the integration” of the game companies.
Under the settlement, the eight remaining members of Yahoo’s board will stand for reelection, including Yang. With Icahn’s additions, the board will expand to 11 seats.
With his board seat, Icahn will be better positioned to push for the potential Microsoft deal that he had made the centerpiece of his campaign.
Microsoft withdrew its offer to buy Yahoo for $47.5 billion and its threat to wage a proxy fight for Yahoo in May. It then made offers to buy Yahoo’s search business, including one made jointly with Icahn.
Microsoft probably won’t make a new bid for all of Yahoo unless it’s sure it can’t get the search business alone, and perhaps not even then, investors who speak regularly with Microsoft executives said.
Yahoo has signaled it would accept Microsoft’s best offer, of $33 a share, for the whole company, but Microsoft has pulled that deal off the table. A Microsoft spokesman declined to comment.
Icahn has made billions for himself and other investors, but his involvement on corporate boards has not always benefited the companies or their shareholders.
He could push for Yahoo to sell its Asian Internet assets or to merge with Time Warner Inc.'s AOL unit. AOL’s separate buyout talks with Yahoo and Microsoft may heat up now that Yahoo is no longer facing a proxy fight.
Jonathan Miller, 51, a partner with venture capital firm Velocity Interactive Group, helped AOL make the transformation from a dial-up Internet business to an advertising company by crafting key acquisitions, including Advertising.com for $435 million in 2004.
As someone with close ties to Yang, Icahn and Microsoft, Miller is seen as a likely successor to Yang should he step down as CEO.
So far, Yang has tried to appease investors by extending the reach of Yahoo’s advertising network and allowing rival Google Inc. to sell some of its highly profitable ads on Yahoo’s search engine.
Analysts expect Yahoo to disappoint investors today when it reports second-quarter financial results. Yahoo faces substantial hurdles: Even as the weakening advertising market spreads to the Internet, the company must stabilize its business after a wrenching takeover battle, fill depleted management ranks and get approval from the Justice Department for its advertising deal with Google.
“Jerry’s career as CEO of Yahoo is probably at the mercy of the economy and the markets and how Yahoo performs over the next couple of quarters,” said Anthony Valencia, media analyst for TCW Group in Los Angeles.
Only in recent weeks has Yang displayed an aggressive side that’s potentially capable of turning the tide of investor sentiment, analysts said.
“Shareholders are always going to remember that Yahoo could have been sold at $33 a share to Microsoft,” said Chris Young, director of mergers and acquisitions research at proxy advisory firm RiskMetrics Group. “Can Yahoo create value equal to or greater than that, and over what period, without a Microsoft transaction?”
Yahoo shares fell 78 cents, or 3.5%, to $21.67. Shares of Microsoft fell 22 cents, or 0.8%, to $25.64.
Staff writer Alex Pham contributed to this report.