Icahn’s Yahoo bid gets a push
Microsoft Corp. revived its pursuit of Yahoo Inc. on Monday, saying it would resume takeover talks if shareholders oust the Internet giant’s board of directors.
Microsoft for the first time threw its support behind Carl Icahn, who is bidding for control of Yahoo in hopes that his team can reach a buyout deal with the software giant.
Less than a month after both companies said talks had broken down, Microsoft said it would again negotiate to buy Yahoo’s search technology or possibly the entire company if Icahn succeeds in replacing Yahoo’s nine directors, including Chief Executive Jerry Yang, at its annual meeting Aug. 1.
Microsoft’s support for the billionaire financier marked the latest twist in the on-again, off-again buyout saga that has frustrated Yahoo investors and seesawed the Sunnyvale, Calif., company’s stock.
The surprise turn of events increases pressure on Yahoo. Hopeful of a deal, investors sent Yahoo’s stock soaring $2.56, or 12%, to $23.91.
“What was true at the beginning remains true: This is a sensible business combination and it needs to happen,” said shareholder Larry Haverty of Gamco Investors Inc. “Shareholders are out $20 billion, and we have seen no evidence that there is any ray of hope in terms of the performance of this company as an independent entity.”
In a letter to Yahoo shareholders, Icahn, who owns about 69 million shares, said he had held frequent discussions with top Microsoft executives including CEO Steve Ballmer during the last week.
Yahoo fired back, accusing the world’s largest software maker of teaming up with Icahn to force Yahoo into a transaction that would not be in the best interests of investors. Yahoo said it approached Ballmer in June about a deal but was rebuffed.
If Microsoft really wants to buy Yahoo, the company said in a statement, “we again invite them to make a proposal immediately.”
But analysts and shareholders said Microsoft’s willingness to revive talks significantly increased the odds that Icahn would prevail.
In another sign of trouble for Yahoo, influential investor Gordon Crawford of Los Angeles-based Capital Research & Management seems to be siding with Icahn.
Crawford had spoken with Icahn and expressed confidence in his plans for Yahoo, a person familiar with the situation said. During a meeting last week, the person said, Crawford told Yang, Yahoo Chairman Roy Bostock and board members Ron Burkle and Gary Wilson that he had lost patience when Yahoo management allowed Microsoft talks to collapse. Capital Research declined to comment.
Yang has been meeting with major investors to make his pitch that Yahoo should remain a stand-alone company.
Like other analysts, Anthony Valencia of TCW Group in Los Angeles said the odds had increased that Microsoft would buy Yahoo, particularly as no other buyers have emerged and the market has lost confidence in the management team.
Yahoo continues to talk with Time Warner Inc. about an alternative to a Microsoft deal that would combine Yahoo and AOL, but a person familiar with those discussions said nothing was imminent.
“It’s safe to say that the general mood among a lot of investors is that some fresh blood, i.e. management, at Yahoo would be good for the company,” Valencia said.The sluggish economy and roiled markets are also making portfolio managers more willing to take a chance on Icahn, particularly after Yahoo stock dived last week, Standard & Poor’s analyst Scott Kessler said. He added that Microsoft’s willingness to work with Icahn undercut one of Yahoo’s main arguments for reelecting its board: that Icahn had no hope of salvaging a deal with Microsoft.
“In this market, with so much pain and uncertainty, people would love the potential payoff that a Microsoft acquisition would provide,” Kessler said.
Microsoft wants Yahoo’s Web search technology to compete with market leader Google Inc. Microsoft walked away from a $47.5-billion takeover bid for Yahoo in May when Yang demanded more. Microsoft then tried to buy Yahoo’s search business for $1 billion, plus an additional $8 billion for a 16% stake in Yahoo, but could not reach an agreement.
Yahoo opted instead for a partnership with Google that it said could add as much as $800 million in revenue a year. That partnership faces antitrust review by the U.S. Justice Department.
Microsoft said it welcomed talks with Icahn but also cautioned: “We respect the right of Yahoo’s shareholders to determine the destiny of their company, and we do not intend to engage in ongoing commentary on these issues in advance of Yahoo’s shareholder meeting.”
Icahn is attempting to gain support for his board slate ahead of a Yahoo shareholder vote. He has the backing of some shareholders, including T. Boone Pickens, chairman of BP Capital, and hedge-fund manager John Paulson.
Icahn is looking to replace nine Yahoo board members with his nominees, who include himself, Dallas Mavericks owner Mark Cuban and former Viacom CEO Frank Biondi Jr.
Large Yahoo shareholders are worried about how Icahn would manage Yahoo if he gained control but failed to consummate a deal with Microsoft. Some have recommended that he campaign for fewer board seats.
In an interview, Icahn said he wouldn’t make a final decision for a few days but still planned to run a full slate. He is also interviewing CEO candidates to replace Yang.
Icahn said in his letter to investors that his talks with Ballmer had centered on the industry but also on how Microsoft and Yahoo could “do a transaction together.” Ballmer made it clear that he could not reach an agreement with Yahoo’s current board but would be willing to should the board be ousted, Icahn said.
The two parties did not discuss price. But Icahn said Yahoo was “moving toward a precipice.”
“IT IS TIME FOR A CHANGE,” he wrote in the letter.
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joe.menn@latimes.com
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Guynn reported from San Francisco; Menn from Los Angeles.
