Billionaire Icahn battles Yahoo board over buyout

Written by Harry Butler

June 11, 2008 | 08:21

Tags: #carl-icahn #jerry-yang #takeover

Companies: #google #microsoft #yahoo

Following the Yahoo! board of directors decision to turn down Microsoft's $44.6 billion buyout back in May, some of Yahoo!'s higher profile investors have been left understandably annoyed. None more so than high profile billionaire investor Carl Icahn, who has been quite open in his plans to oust the current Yahoo! board in a proxy battle, replacing them with Microsoft-friendly directors, and hopefully sealing a merger between the two internet giants.

Icahn's major point of contention lies over claims that Jerry Yang, Yahoo! co-founder and current CEO, effectively sabotaged the Microsoft takeover bid with Yahoo!'s employee retention system. In a letter to Yahoo chairman Roy Bostock last week, Icahn brought the complaint that,

"Viewing employee retention as Microsoft's Achilles heel, Yang engineered an ingenious defence creating huge incentives for a massive employee walkout in the aftermath of a change in control. The plan gives each of Yahoo's 14,000 full-time employees the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover, by claiming a "substantive adverse alteration" in job duties or responsibilities."

Icahn even went so far to accuse Yahoo! of lying to employees, stating, "Even more deceitful are Yahoo's actions toward its own employees, for whom you claimed to have set up the "plan". Management neglected to mention to these same employees that Microsoft in its proposals had earmarked $1.5 billion of retention incentives (representing over $100,000 per employee) meant to allay any employee concerns."

The story goes that fearing a mass exodus of talent from Yahoo! in the event of a takeover, Microsoft backed away from the bargaining table. However, Yahoo! took exception to Icahn's inflammatory accusations and issued a counter statement, claiming that "he (Icahn) has no credible plan to operate Yahoo!" and "We believe that Mr. Icahn's suggestion that we cancel our retention plan would have a destabilizing impact on Yahoo! and would clearly not be in the best interests of our shareholders."

Yesterday Icahn responded with another letter to the Yahoo! board, accusing it of "Repeating misstatements in the hope it will convince its shareholders that these misstatements are valid." and even asking "The Board to bring in a talented and experienced CEO to replace Jerry Yang and return Jerry to his role as "Chief Yahoo!" He also brought up the painful point that while Google's operations have grown by 59% in the past two years, Yahoo!'s income dropped by 21 percent.

Is Icahn right to try to oust the Yahoo! board, and force a merger with Microsoft? Or is Google's lead in the search market unassailable even by the combined might of Yahoo! and Microsoft? Let us know in the forums.
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