Icahn launches Yahoo proxy fight; Mark Cuban's return?

Icahn launches Yahoo proxy fight; Mark Cuban's return?

Summary: As expected, billionaire Carl Icahn launched his proxy war to turn over Yahoo's board of directors and one of his nominees is Mark Cuban, who sold Broadcast.com to Yahoo and then took those funds to buy the Dallas Mavericks.

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As expected, billionaire Carl Icahn launched his proxy war to turn over Yahoo's board of directors and one of his nominees is Mark Cuban, who sold Broadcast.com to Yahoo and then took those funds to buy the Dallas Mavericks.

Just for entertainment value I may buy a share just to vote for Cuban.

In a letter to Yahoo Chairman Roy Bostock (see below), Icahn said the board was "irresponsible" in turning down Microsoft's bid. The board was also hiding "behind management's more than overly optimistic financial forecasts."

Money quote:

I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

Icahn also noted that he bought 59 million shares of Yahoo. Update: Yahoo has responded with a letter noting that Icahn lacks all the details about the Microsoft negotiations.

Also see: Can Icahn bring Microsoft's Yahoo bid back?

Mary Jo Foley: The real question: Is Microsoft still interested in Yahoo?

In a nutshell, Icahn said Yahoo's board was "irrational" so he wants a new one. He nominated 10 directors. Icahn will be joined by Keith Meister, Cuban and former Viacom CEO Frank Biondi Jr. Other names--Lucian Bebcuk, John Chapple, Adam Dell, Edward Meyer, Brian Posner and Robert Shaye--were roughly as expected.

All 10 Yahoo directors are up for re-election.

Will Icahn's slate win? It's unclear. A Yahoo shareholder has the following choices:

  • Trust Icahn's takeover and hope he can control Yahoo and then sell to Microsoft.
  • Keep the status quo because Microsoft may not come back.

Here's Icahn's letter:

Carl C. Icahn ICAHN CAPITAL LP 767 Fifth Avenue, 47th Floor New York, NY 10153

May 15, 2008

Roy Bostock Chairman Yahoo! Inc. 701 First Avenue Sunnyvale, CA 94089

Dear Mr. Bostock:

It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis. I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.

During the past week, a number of shareholders have asked me to lead a proxy fight to attempt to remove the current board and to establish a new board which would attempt to negotiate a successful merger with Microsoft, something that in my opinion the current board has completely botched. I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies. I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock. The biographies of the members of our slate are attached to this letter. A more formal notification is being delivered today to Yahoo under separate cover.

While it is my understanding that you do not intend to enter into any transaction that would impede a Microsoft-Yahoo merger, I am concerned that in several recent press releases you stated that you intend to pursue certain "strategic alternatives". I therefore hope and trust that if there is any question that these "strategic alternatives" might in any way impede a future Microsoft merger you will at the very least allow shareholders to opine on them before embarking on such a transaction.

I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.

Sincerely yours,

CARL C. ICAHN

And here's Icahn's board nominees (shortened bios):

  • Lucian A. Bebchuk: The William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School. Bebchuk is also a Research Associate of the National Bureau of Economic Research and Inaugural Fellow of the European Corporate Governance Network.
  • Frank J. Biondi, Jr.: Former CEO of Universal Studios and Viacom.
  • John H. Chapple: President of Hawkeye Investments LLC, a privately-owned equity firm investing primarily in telecommunications and real estate ventures frequently working in conjunction with Rally Capital LLC. Prior to forming Hawkeye, Chapple worked to organize Nextel Partners, a provider of digital wireless services in mid-size and smaller markets throughout the U.S. He became the President, Chief Executive Officer and Chairman of the Board of Nextel Partners and its subsidiaries in August of 1998.
  • Mark Cuban: Owner of the Dallas Mavericks. Co-founder of HDNet. He also founded Broadcast.com in 1995 and sold it to Yahoo in July 1999.
  • Adam Dell: Managing General Partner of Impact Venture Partners, a venture capital firm focused on information technology investments.
  • Carl C. Icahn: Activist shareholder bar none. The entire bio: Mr. Icahn has served as chairman of the board and a director of Starfire Holding Corporation, a privately-held holding company, and chairman of the board and a director of various subsidiaries of Starfire, since 1984. Since August 2007, through his position as Chief Executive Officer of Icahn Capital LP, a wholly owned subsidiary of Icahn Enterprises L.P., and certain related entities, Mr. Icahn's principal occupation is managing private investment funds, including Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Partners Master Fund II L.P. and Icahn Partners Master Fund III L.P. Prior to August 2007, Mr. Icahn conducted this occupation through his entities CCI Onshore Corp. and CCI Offshore Corp since September 2004. Since November 1990, Mr. Icahn has been chairman of the board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P. Icahn Enterprises L.P. is a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion. Mr. Icahn was chairman of the board and president of Icahn & Co., Inc., a registered broker- dealer and a member of the National Association of Securities Dealers, from 1968 to 2005. Mr. Icahn has served as chairman of the board and as a director of American Railcar Industries, Inc., a company that is primarily engaged in the business of manufacturing covered hopper and tank railcars, since 1994. From October 1998 through May 2004, Mr. Icahn was the president and a director of Stratosphere Corporation, the owner and operator of the Stratosphere Hotel and Casino inLas Vegas, which, until February 2008, was a subsidiary of Icahn Enterprises L.P. From September 2000 to February 2007, Mr. Icahn served as the chairman of the board of GB Holdings, Inc., which owned an interest in Atlantic Coast Holdings, Inc., the owner and operator of The Sands casino in Atlantic City until November 2006. Mr. Icahn has been chairman of the board and a director of XO Holdings, Inc., a telecommunications services provider, since February 2006, and of its predecessor from January 2003 to February 2006. Mr. Icahn has served as a Director of Cadus Corporation, a company engaged in the ownership and licensing of yeast-based drug discovery technologies since July 1993. In May 2005, Mr. Icahn became a director of Blockbuster Inc., a provider of in-home movie rental and game entertainment. In October 2005, Mr. Icahn became a director of WestPoint International, Inc., a manufacturer of bed and bath home fashion products. In September 2006, Mr. Icahn became a director of ImClone Systems Incorporated, a biopharmaceutical company, and since October 2006 has been the chairman of the board of ImClone. In August 2007, Mr. Icahn became a director of WCI Communities, Inc., a homebuilding company, and since September 2007 has been the chairman of the board of WCI. In December 2007, Mr. Icahn became a director of Federal-Mogul Corporation, a supplier of automotive products, and since January 2008 has been the chairman of the board of Federal-Mogul. In April 2008, Mr. Icahn became a director of Motricity, Inc., a privately-held company that provides mobile content services and solutions. Mr. Icahn received his B.A. from Princeton University.
  • Keith A. Meister: Icahn's right-hand man and Principal Executive Officer and Vice Chairman of the Board of Icahn Enterprises G.P. Inc., the general partner of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment management, metals, real estate and home fashion.
  • Edward H. Meyer: CEO and Chief Investment Officer of Ocean Road Advisors, Inc., an investment management company.
  • Brian S. Posner: Private investor. From 2005 through March 2008, he served as Chief Executive Officer and co-Chief Investment Officer of ClearBridge Advisors LLC (and its predecessor company, CAM North America), an asset management company based inNew York with approximately $90 billion in assets and a wholly owned subsidiary of Legg Mason Inc.
  • Robert K. Shaye: Co-Chairman and Co-CEO of New Line Cinema. As the Founder of New Line Cinema and a filmmaker himself, Robert Shaye has spent more than 40 years developing and distributing films that reflect a wide array of cultural movements, creating new paradigms for the motion picture business, and most importantly, entertaining millions of moviegoers.

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32 comments
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  • Mark Cuban - Time Traveller and Mastermind

    Mark Cuban "founded Broadcast.com in 1005 and sold it to Yahoo in July 1999". HOLY %&*! Mark Cuban not only travelled back to 1005, but he also registered a domain and started an internet company even before folks could comprehend what a server does!

    Sign him up; anyone who can do that can surely fix Yahoo's problems.

    And while he's at it, maybe he can join ZDNet as an editor or proofreader.
    tehremo
    • Indeed!

      Thanks, tehremo, for saying exactly what I was thinking.

      Unbelievable. And unacceptable.
      GuyAlanDye
    • Fixed

      Thanks for proofreading. That Mark Cuban is an amazing guy, but time travel isn't one of his specialties yet.
      Larry Dignan
  • RE: Icahn launches Yahoo proxy fight; Mark Cuban's return?

    Cuban's obviously a great forwards thinker and not to mention old if he founded Broadcast.com in 1005
    Average_Joe
  • RE: Icahn launches Yahoo proxy fight; Mark Cuban's return?

    Interesting, lets not forget that Mr Icahns interest is not Yahoo's interest, but his own interest.....
    tombalablomba
    • Icahn launches Yahoo proxy fight

      Note that none of the proposed board members are really technology people. These are financial people who know how to milk Yahoo for the maximum amount of cash in the short term, but don't understand how to motivate & grow the service it has become to so many people. Google is the big winner here.
      alpyne2
    • As is nearly all...

      shareholders.

      Whether this is good for MS and Yahoo remains to be seen. But there is no questions, it serves the exact reason that shareholders bought Yahoo stock - to make money.
      bjbrock
      • Really?

        Assume Icahn, known for decades for taking control so he
        can strip and sell, and his board are installed at Yahoo.
        Microsoft doesn't reduce the bid price in that scenario???
        Seriously what else would Icahn do with the company? Did
        Icahn pre-negotiate with Microsoft a price that lets Icahn
        walk away with a neat ROI for his efforts?

        I would guess that Icahn doesn't want to win, he wants
        Yang to call up Microsoft and make the deal (which will --
        shotgun as it is -- not be as good as the end of January
        offering. Or he wants to be bought out of his Yahoo
        position profitably.

        This still isn't a slam dunk. Any shareholder who wanted to
        get out of the Yahoo business had a great four month
        window recently. And stockholders are also looking at the
        price with which they bought the stock.
        DannyO_0x98
        • What else would Icahn do?

          He could try to run it, or he could market it to a third party. My suspicion would be that he thinks he can make MS an offer they can't refuse, and he may well be right.
          John L. Ries
          • The More I've Thought About It

            I'm sure he's looking for a 10-30% gain, so add that, per
            share, to what he paid and look for a sales price in that
            range. I really can't see why he wouldn't have run some
            numbers, given Ballmer a call and checked if the price was
            conceptually doable. I also see this plan as being formulated
            during the offer and negotiation period and requiring the
            Microsoft withdrawal in order to get Yahoo's stock back
            down.
            DannyO_0x98
  • RE: Icahn launches Yahoo proxy fight; Mark Cuban's return?

    So Yahoo, the grand father the portal will be soon given a death sentence. MS Can't run a portal unless they have a captive audience. MSN has not gained any real market share a long time. MS has spent Billions in trying to build their Ad business, yet they flounder around spending more money, yet not really adding any market share. MS has not figured out that the Online AD business needs very low overhead, quick agile business process, and innovative technology, in order to make money and market share. As far as I can tell, MS never lowers overhead they only increase the body count in management, ponderous business processes, and slow at innovating technology (some may claim they do not innovate at all) The best thing they can do, when they buy Yahoo, is to close their MSN properties and roll all their dollars, Ad, and portal business into a stand alone wholly owned subsidiary Yahoo, and let the Yahoo engineers use any technology they need do not make them use only MS tech. That might make money if Ballmer does NOT touch it at all.
    xshakes
    • Everyone assumes Ballmer...

      will radically change the way Yahoo operates. And thus its demise. Maybe, just maybe, Ballmer is smart enough to recognize Yahoo's way as not such a bad way.

      This I believe is his last chance to pull a rabbit out of his hat. Since MS has been unable to capitalize in this arena in the past, he may give Yahoo more freedom than most folks think. I have to believe he is smart enough to figure this out.

      Then again, maybe it's time for taps to sound. :-)
      bjbrock
      • Past history is not auspicious

        Given MS' normally admirable "eat your own dog food" philosophy, I think they'd would be forced to make radical changes at Yahoo, at least under the hood (hard to persuade potential customers to do what you won't do yourself). It also doesn't seem to make much sense for MS to maintain two separate online services (Yahoo and MSN), but AOL maintained Compuserve as a separate service for years, so that can't be ruled out.

        I figure MS will get Yahoo in the end if they want it badly enough (more's the pity), but what they would do with it once they have it remains to be seen. MS should never have made the offer, as it's neither in their nor the public's interest.
        John L. Ries
  • Game On

    Once Yahoo! was 'put in play' by Microsoft's offer, you knew the sharks would start to circle.
    buyer_beware
  • 2 + 3 = 1?

    I understand him wanting to fill stockholder pockets. But the part about Microhoo being able to compete with Google was spoken like a true business person and non-technie lmao. Yahoo's properties would fade even further just like everything else MS puts on the web does. They most likely won't want to continue to use the technology and expertise in use at Yahoo as it weakens their image on server technology. So what they will end up with is a name, more work for their current techies and a void on the internet waiting to be filled by the next web 2.0 success story.
    storm14k
  • RE: Icahn launches Yahoo proxy fight; Mark Cuban's return?

    This is so exciting! Better than primetime TV!
    silent.griffin
  • "Shareholder activist?"

    The proper description is "corporate raider". He and Boone Pickens appear to be the last of the major corporate raiders of the 1980s still active. Given that he didn't hold any shares in Yahoo until a few days ago makes the outrage seem a bit contrived. This looks like a purely speculative investment; we'll see how it plays out.

    Interesting that his resume doesn't mention the fact that he was chairman of TWA (his most prominent acquisition) for several years in the 1980s.
    John L. Ries
    • you'd rather have management activists?

      You'd rather have management do whatever they want? These raiders shake up unresponsive management.

      Yahoo shareholders lost out on a lot of cash...and it is doubtful the current team can deliver simlar value.
      otaddy
      • Neither, but...

        Icahn's concern for the "rights" of shareholders has always struck me as crocodile tears: a device for winning allies in an effort driven purely by personal profit.

        The problem with the whole approach is that it forces publicly traded corporations to focus on short term profit and stock prices to the exclusion of all else.
        John L. Ries
        • fair enough John

          I worry more about management teams that are deaf to shareholder concerns.

          You do raise valid points however.

          BTW, my only real complaint about T Boone Pickens is that he supported George W Bush!
          otaddy