The lull in Icahn's proxy fight

Billionaire investor Carl Icahn has been relatively quiet since unveiling his slate of dissident directors to run against Yahoo's current board nearly two weeks ago.

Is the agitator of corporate America and merger matchmaker beginning to believe Microsoft won't come back to the table with another bid for Yahoo? Should investors be concerned?

"If Icahn hasn't turned up the heat a few weeks before Yahoo holds its (annual shareholders) meeting, I think shareholders will begin to wonder what's going on," said Chris Young, director of mergers and acquisitions research for RiskMetrics Group, an influential proxy advisory firm that makes vote recommendations to institutional investor clients.

Icahn, who launched his proxy slate not long after Microsoft withdrew its sweetened unsolicited $33 a share bid, is likely laying low, now that the shareholders meeting date has been postponed beyond its initial July 3 date to sometime in late July, said folks familiar with proxy fights.

"Since there's no date for the meeting yet, he has no reason to do anything. He's made his position pretty clear and has the luxury of time to wait and see what Yahoo does," said Bruce Goldfarb, chief executive of proxy solicitation firm Okapi Partners.

Shortly after Icahn launched his proxy fight, Microsoft and Yahoo re-entered talks, but even now Microsoft CEO Steve Ballmer notes that the software giant is "not rebidding" on Yahoo.

"The bid was out for three months. There was a difference between bid and ask. We were going to be disciplined about it. We walked away. We are talking with them about other ideas, but we are not rebidding on the company. I won't comment on what we are talking about," Ballmer said during a presentation Tuesday at the sixth annual "D: All Things Digital" conference.

Should Microsoft fail to give investors any sign that it's interested in buying Yahoo by mid-July, Icahn would likely scale back his plans to get all 10 of his dissident directors elected to Yahoo's board, Young predicted.

"I don't think he'll drop his slate entirely, but maybe scale back the scope of his demands to where he'll seek minority representation on the board," Young said.

Yahoo, in its preliminary proxy filing, is calling on investors to vote for its incumbent slate of nine directors and ignore Icahn's slate.

Icahn has yet to file his own preliminary proxy and set up dates to give a formal road show presentation to proxy advisory firms, according to representatives from several large proxy advisory firms, whose clients include pension funds, mutual funds, and asset managers.

"The fact that he hasn't called to set up a meeting is not a concern yet," said Warren Chen, managing director of M&A and quantitative analysis for Glass Lewis & Co., a proxy advisory firm. "If Icahn hasn't filed anything official two or three weeks before the shareholders meeting date, then we would start questioning the shareholder."

Icahn, when he announced his proxy slate, noted he had acquired 59 million Yahoo shares and options and sought clearance from the Federal Trade Commission to increase his stake by up to another $2.5 billion in Yahoo shares.

Chen and Young both noted they're not surprised Icahn has not ramped up his proxy fight into a full-mudslinging session yet, given there is approximately two months to go before the end of July.

"Usually there's a lot of campaigning in the month before the shareholders meeting," Chen said.

Proxy advisory firms like RiskMetrics, Glass Lewis and Proxy Governance say they issue their recommendations to their clients about a week to two weeks before the shareholders meeting. Institutional investors often wait until a day or two before the shareholders meeting to cast their vote.

Icahn is no stranger to situations where a prospective buyer withdraws an offer.

The shareholder activist, for example, played a key role in striking a deal between BEA Systems and Oracle. Icahn, who was a BEA investor and advocate of a sale of the middleware software maker before Oracle entered the picture with an unsolicited offer, witnessed the arrival of an Oracle offer and then its withdrawal.

But Icahn remained active in prompting the two parties to ultimately strike a deal, virtually negotiating the buyout price, .

And according to FactSet Research's SharkRepellent, Icahn also launched a shareholder dissident campaign in late 2004 to urge Hollywood Entertainment to accept a merger offer from Blockbuster, one of three potential suitors for the company. Blockbuster, which offered a cash bid of $11.50 a share, withdrew its offer three months later. Hollywood Entertainment was sold the following month to an affiliate of Movie Gallery for $13.25 a share.

Icahn and Microsoft are potentially co-dependents, should Microsoft need approval from Yahoo investors for any deal.

If Microsoft ultimately changes its mind and seeks to acquire Yahoo at a price the search pioneer rejects, the software giant is dependent upon Icahn's proxy slate to unseat Yahoo's board and push an acquisition forward.

Icahn, obviously, is dependent upon Microsoft to be there with an offer or indication of interest, in order to increase the chances his dissident slate will be elected.

And if Microsoft strikes a deal with Yahoo to only acquire a portion of its assets and needs shareholder approval to carry it off, Icahn and Yahoo investors may not be there.

Despite the current relative calm from the Icahn camp, Shirley Westcott, managing director of policy for Proxy Governance, said: "Icahn is noisy when he needs to be."