Posted on Tue, Jul. 8, 2008
SAN FRANCISCO - Microsoft Corp. threw its weight yesterday behind investor Carl Icahn's effort to dump Yahoo Inc.'s board, saying it might revive its takeover talks if Icahn succeeds.
The unexpected endorsement gives Icahn a carrot to dangle before Yahoo shareholders as he wages an acrimonious campaign to replace Yahoo's nine directors at the company's annual meeting Aug. 1.
It marks the first time that Microsoft has publicly sided with Icahn since the investor launched his attempted coup nearly eight weeks ago.
The two sides decided they could work together after Icahn held "frequent" discussions with Microsoft chief executive Steve Ballmer and some of his top lieutenants during the last week, according to a letter that Icahn sent to Yahoo shareholders.
Industry analysts said Icahn now has more credibility with Yahoo shareholders because he has been arguing that a purge of Yahoo's board is the only way to salvage a deal with Microsoft.
"This breathes new life into Icahn's proposal," said Stanford Group analyst Clayton Moran. "It really pushes the power to Icahn and his board [nominees]."
Yahoo, echoing previous remarks in its battle with Icahn, questioned Microsoft's interest in buying the entire company.
"If Microsoft and Mr. Ballmer really want to purchase Yahoo, we again invite them to make a proposal immediately," Yahoo said.
Icahn said Microsoft didn't want to risk making a bid under Yahoo's current regime, because it fears Yahoo's management would make more poor decisions during an antitrust review that would take at least nine months.
Microsoft's willingness to work with Icahn undermines one of Yahoo's chief arguments for reelecting its board. Yahoo has maintained that it would be foolhardy to back Icahn's slate of alternate nominees because Icahn had no concrete ideas besides selling the company to Microsoft - something that Yahoo has been depicting as a pipe dream since Microsoft withdrew a $47.5 billion offer in early May.
With Microsoft in Icahn's corner, "the dynamic has changed," Sanford C. Bernstein & Co. analyst Jeffrey Lindsay said. "There is now a rationale for voting for Icahn's board because there now seems to be a real possibility for a deal again."
Yesterday's turn of events amplifies the pressure on Yahoo cofounder and CEO Jerry Yang, whose handling of the earlier negotiations with Microsoft infuriated many shareholders.
If he seizes control of the board, Icahn has promised to fire Yang, 39, as CEO and replace him with a more seasoned leader.
Yang has been meeting with Yahoo's major stockholders during the last week, hoping to persuade them to give him a chance to prove the Sunnyvale, Calif., company is worth more than the $33 per share that Microsoft previously offered.
In its statement, Microsoft didn't mention how much it thought Yahoo was worth now.
Analysts said Microsoft would likely pay from $28 to $33 per share if it took another stab at acquiring Yahoo whole.
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