Yahoo strikes deal with Icahn, giving dissident a seat on board

By Daniel | July 21, 2008

Yahoo strikes deal with Carl Icahn

Investor ends proxy fight, gets board seat on Web portal

By Benjamin Pimentel, MarketWatch

Last Update: 7/21/2008 10:38:00 AM

SAN FRANCISCO (MarketWatch) - Yahoo Inc. and Carl Icahn made peace Monday after
the Web portal agreed to name the dissident shareholder to its board in return
for an end to his campaign to take over the company.

The agreement, announced before the opening bell, means Yahoo (YHOO) management
led by CEO Jerry Yang will not be forced out a shareholder revolt when the
company holds its annual meeting on Aug. 1, although Icahn will now have a voice
in the Internet giant’s inner sanctum, and possibly a say in any future merger
talks with Microsoft Corp. (MSFT)

The deal sent Yahoo shares down more than 2% in morning trading, in a sign that
while the Icahn deal is a victory for the company’s board, Wall Street remains
skeptical about the Internet giant’s prospects as a standalone company.

Under the agreement, Icahn, who owns about 5% of Yahoo stock, will get a seat on
an expanded board with 11 members. Icahn has agreed to endorse eight of Yahoo’s
current directors. Incumbent director Bobby Kotick has agreed to step down. Yahoo
will then appoint two other new directors from a list of nominees submitted by
Icahn, which includes his slate of nominees and Jonathan Miller, former chairman
and CEO of America Online and a partner in Velocity Interactive Group.

In a statement, Yang said the deal allows Yahoo “to put the distraction of the
proxy contest behind us all.”

In the same release, Icahn also said, “I believe this is a good outcome and that
we will have a strong working relationship going forward. Additionally, I am
happy that the board has agreed in the settlement agreement that any meaningful
transaction, including the strategy in dealing with that transaction, will be
fully discussed with the entire board before any final decision is made.”

Sale off the table?

Analyst Roger Kay of Endpoint Technologies Associates said the deal was a victory
for Yahoo, but he quickly noted that the “market correctly interpreted the move
as bad for Icahn’s ability to force a sale.”

“With a board seat and no voting majority, he can’t do much but make meetings
unpleasant,” he said. “He even has a fiduciary obligation to keep his mouth shut.
Maybe he was flattered with the offer to be brought into the inner sanctum. Maybe
he thinks he can argue them around from the inside. But objectively, Yahoo’s
position has improved.”

But while Yahoo now appears in a better position to remain independent, he added,
that “may be contrary to Wall Street’s wishes.”

Analyst Steve Allen of Sierra Tech Research said its unclear if that deal puts an
end to the war between Icahn and Yahoo, saying the deal reminds him of the
Missouri Compromise.

“Heed Abraham Lincoln’s biblical words, ‘A house divided cannot stand,’” he said.
“Neither side has won and neither side has conceded defeat. Fight on.”

The proxy battle erupted after failed merger talks between Yahoo and Microsoft,
which prompted Icahn’s bid to take over the company and resume negotiations with
Microsoft. His campaign was complicated by the fact that Microsoft said it was no
longer interested in a full merger but was open to a deal in which it would
acquire Yahoo’s search business.

Last week, Yahoo also rejected another proposal from Microsoft and Icahn saying
it didn’t make sense for shareholders. Yahoo has pushed for a full merger at a
price of $33 or higher.

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