Investor activist Carl Icahn is seeking control of the Yahoo board and will run a slate of nine dissident directors, according to his definitive proxy, filed Monday with the Securities and Exchange Commission.
Over the weekend, a final attempt to strike a deal failed, when Yahoo rejected a joint-proposal by Icahn and Microsoft. That deal called for Microsoft to acquire Yahoo's search business, while turning over control of Yahoo's board to Icahn's slate of dissident directors.
Icahn's announcement Monday finally answers the question that has left investors wondering whether he would try to oust Yahoo's entire board to have greater control over the company's direction and striking a deal with Microsoft, or go after only a few seats to serve as a cattle prod.
By filing a slate of nine dissident directors, Icahn is seeking to replace Yahoo's entire board at its August 1 annual shareholders meeting. Yahoo's nine current board members are up for re-election to a one-year term. Icahn's goal is to ensure that the next time Microsoft or any other suitor comes a-calling that the path to a buyout will have far fewer potholes in the road.
Here's a sample of Icahn's views on that matter, taken from his proxy filing:
We are significant shareholders of Yahoo! Inc. with an investment of
approximately 4.98% of the company's outstanding common shares. We believe that
NOW IS THE TIME TO ENTER INTO A SIGNIFICANT TRANSACTION WITH MICROSOFT. To that
end, we have nominated nine directors to replace Yahoo's current board. We urge
you to read the enclosed proxy statement and vote the GOLD proxy card in favor
of our nominees.
As you may have read in the news, during the past two weeks I have spoken
frequently with Steve Ballmer, CEO of Microsoft, about my desire to have
Microsoft acquire Yahoo. In those conversations, Mr. Ballmer stated that he
would be interested in discussing a major transaction with Yahoo, such as either
a transaction to purchase the "Search" function with large financial guarantees
or, in the alternative, purchasing the whole company. However, Mr Ballmer
indicated that, due to his experiences with Yahoo during the past several
months, he could not negotiate any transaction with the current board. Mr.
Ballmer explained that if a transaction were to be consummated, Microsoft would
be guaranteeing a great deal of capital at closing, but a transaction could take
at least nine months and perhaps longer to close due to the necessity of
obtaining the necessary regulatory clearances. Mr. Ballmer stated that if the
current board and management team of Yahoo were to mismanage the company during
that period - a risk that Microsoft perceives to be quite high - Microsoft's
money would be at risk and a great deal could be lost. However, Steve made it
clear to me that if a new board consisting of my nominees were to be elected,
Microsoft would be willing to enter into discussions regarding a transaction
immediately. If and when elected, I strongly believe that in very short order
the new board would, subject to its fiduciary duties, be presenting to
shareholders either a purchase offer for the whole company or a very attractive
offer to purchase "Search" with large guarantees.
Icahn's nine candidates are as follows: Lucian A. Bebchuk, Frank J. Biondi, Jr., John H. Chapple, Mark Cuban, Adam Dell, Carl C. Icahn, Keith A. Meister, Edward H. Meyer, and Brian S. Posner.
In running a full slate against Yahoo's current board, rather than a partial slate, Icahn still faces challenges in wooing investors over to his camp, despite Microsoft making a public statement declaring a renewed interest in buying Yahoo or its search business at a sweetened price.
One source with an institutional investor advisory services firm previously had this to say about a full slate nominated by Icahn:
If Icahn proposes a majority slate, it signals a takeover of the company...and the institutional advisory services will look at him with caution and look at his motives.
Icahn does not have economic ownership of Yahoo (a controlling stake), but by controlling the board, it will allow him to do what he wants to his benefit without paying a premium to take control of Yahoo.
Institutional investor advisory firms--such as RiskMetrics, Glass Lewis & Co., and Proxy Governance--issue recommendations to their clients on how to vote on proxy matters. As a result, these firms hold great sway over shareholder votes.
And if the institutional investor advisory services firms have trouble with Icahn taking control of Yahoo's board, they always have the option of recommending to investors that they fill out Icahn's gold proxy card and vote for four or fewer of his board nominees, supporting only a minority representation by Icahn on the board.
With Icahn's final slate of dissident directors named, investors should expect a series of so-called fight letters to fly back and forth between the companies, taking on the air of a hotly contested political campaign.
And as the institutional investor advisory services come out with their recommendations, usually a week or two before the annual shareholders meeting, either party may begin to think about reaching a settlement before the annual meeting, say proxy solicitors.
Institutional investors typically wait a day or two before the annual shareholders meeting to cast their vote on proxy matters, so the fear factor among the parties may not be so acute before then.