Icahn on Yahoo: I'd hire a 'talented and experienced' CEO

Icahn on Yahoo: I'd hire a 'talented and experienced' CEO

Summary: In his latest missive to Yahoo's board of directors, activist shareholder Carl Icahn blasts chairman Roy Bostock and outlines what he'd do if he gets control of the company's board. Right after he ditched Yahoo's poison pill, Icahn said he would "ask our new board to hire a talented and experienced CEO.

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In his latest missive to Yahoo's board of directors, activist shareholder Carl Icahn blasts chairman Roy Bostock and outlines what he'd do if he gets control of the company's board. Right after he ditched Yahoo's poison pill, Icahn said he would "ask our new board to hire a talented and experienced CEO."

Icahn was responding to Bostock's response to a June 4 letter raising concerns about a Yahoo employee compensation plan. Yahoo has responded to Icahn's letter saying that he "has no credible plan to operate Yahoo."

Here's what Icahn said he would do (Techmeme):

  • First, I would work to have the board replace your "poison pill" severance plan with an acceptable alternative.
  • Second, I intend to ask our new board to hire a talented and experienced CEO (attempting to replicate Google's success with Eric Schmidt) to replace Jerry Yang and return Jerry to his role as "Chief Yahoo". Indeed, it was much speculated that Jerry would serve in the CEO role temporarily until a permanent CEO was hired after the board asked Terry Semel to resign.
  • Third, I intend to ask our new board to inform Microsoft that unless any alternative transaction can insure a $33 or higher stock price (of which I am skeptical) all talks of alternative transactions are over.
  • Fourth, I will ask our new board to offer publicly to sell Yahoo! to Microsoft in a friendly and cooperative transaction.
  • Fifth, to the extent Microsoft does not want to make a proposal, I will ask our new board do a deal on search with Google, but only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft.

It can't get more clear than that. Should Icahn get his shot?

Here's the full text:

Carl C. Icahn

ICAHN CAPITAL LP

767 Fifth Avenue, 47th Floor

New York, NY 10153

June 6, 2008

Roy Bostock

Chairman

Yahoo! Inc.

701 First Avenue

Sunnyvale, CA 94089

Dear Roy:

While you may take issue with the content of my letter, I take issue with your oversight of Yahoo! Again, I stand by my characterization of your "poison pill" severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who "misrepresents and misstates the details" of the plan. Much like the rhetoric in many well known political campaigns, you keep repeating misstatements in the hopes that by repeating misstatements enough times it will convince your shareholders that these misstatements are valid. For example, you repeated, "the plan was fully disclosed at the time of its adoption and should be no surprise to anyone at this point." This is simply not true. The egregious magnitude of the dollar amount cost of the plan was never fully disclosed, nor was the email from your compensation advisor calling the plan "nuts." While you keep repeating that the severance plan was in the "best interests of shareholders", you neglect to mention that the financial cost of the plan could be immense. The documents obtained during discovery and released in the shareholder complaint show that Yahoo! estimates the maximum change in control severance expenses to be a staggering $2.4 billion if Microsoft bids $35 per share for Yahoo! You neglected to mention that the true cost to an acquirer may be even higher as the perverse change in control severance incentives may diminish the work effort of Yahoo! employees. In case you do not understand the plan, in addition to the $2.4 billion of severance expenses, I believe the plan will negatively impact employee behavior and degrade the ability of an acquirer to successfully integrate the acquisition. In the event of a change of control, the employee may decide not to work as hard in the hopes of cashing in on a robust severance package that awards up to two years salary and benefits, $15,000 of outplacement expenses, and accelerated vesting of stock options and restricted stock units. To make matters worse, it is not just the acquirer firing the employee that can trigger the severance package but the employee who may decide on his or her own to resign for "good reason" at any point within two years of a change in control. It is quite obvious to me that this plan impacts the price an acquirer would pay. Is it any wonder than an acquirer, once fully comprehending this plan, might not wish to negotiate any further? I again call upon you to honor your fiduciary duty to your shareholders and rescind this "poison pill" severance plan.

You asked, "what exactly would happen to our Company if you and your nominees were to take control of Yahoo!" I will give you my perspective on that.

o First, I would work to have the board replace your "poison pill" severance plan with an acceptable alternative.

o Second, I intend to ask our new board to hire a talented and experienced CEO (attempting to replicate Google's success with Eric Schmidt) to replace Jerry Yang and return Jerry to his role as "Chief Yahoo". Indeed, it was much speculated that Jerry would serve in the CEO role temporarily until a permanent CEO was hired after the board asked Terry Semel to resign.

o Third, I intend to ask our new board to inform Microsoft that unless any alternative transaction can insure a $33 or higher stock price (of which I am skeptical) all talks of alternative transactions are over.

o Fourth, I will ask our new board to offer publicly to sell Yahoo! to Microsoft in a friendly and cooperative transaction.

---------------------------------------------------------

o Fifth, to the extent Microsoft does not want to make a proposal, I will ask our new board do a deal on search with Google, but only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

o Why don't you, now that you have the opportunity, remove the "poison pill" severance plan that I find to be ridiculous and thereby remove a major obstacle to a Microsoft acquisition?

o In my opinion, Microsoft does not believe you will ever sell the entire company on a friendly basis. So why don't you stop dancing around the subject and publicly offer to sell the company to Microsoft for $34.375 per share and promise to cooperate completely?

o Why are you still giving hope to Microsoft that there is a possible "alternative deal"? As long as there is the possibility of an "alternative deal", isn't it obvious that Microsoft will not make a bid for the whole company?

Sincerely yours,

CARL C. ICAHN

Topics: Legal, CXO, Enterprise Software, Microsoft, Social Enterprise

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9 comments
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  • Give me a break

    I'd like to see Icahn actually create something from scratch.

    All these billionaires are so full of it. Yes they made their money, and once you have it you forget the effort to build up something from scratch.

    Paul Allen, Bill Gates, Steve Wozinak (not a billionaire but still an example). They all tried various other things and found it very hard.

    Stop whining about Jerry Yang you leach and actaully build something because 10 years after you die, they'll be saying "Icahn who?" just as if you lived in a trailer park.
    croberts
    • Much easier to destroy than to create

      Icahn's made lots of money doing the former, but, as far as I know, he's never created anything. Despite all the high sounding shareholder rights rhetoric, he's really just another speculator at heart.
      John L. Ries
      • "just another speculator at heart"?

        I'd say more like a quasi-legal Corporate Economy Terrorist.

        He is successful at destroying honest Corporations, and transforming them into a den of thieves. What a business philosophy! He is truly a Champ!
        Ole Man
    • 10 years after they die

      Good point - he has never done anything from scratch if I remember
      marc_90292@...
  • Icahn is the one giving Microsoft hope not Jerry Yang

    I wish he would just go away.
    Randalllind
  • The life-cycle of an enterprise

    This is how it goes. First you have a couple of guys in a garage turning out a cool new invention. Then they have to hire managers to run all the different aspects of the business. Eventually the accountants weasel their way into the top echelons of management. And finally it turns in to a war of billionnaires trying to cash in on the deal, slice up the company, mergers and acquisitions that do nothing but generate fees for attorneys in 3 piece suits, and finally the whole thing looks like General Motors: a completely incompetent, uninteresting, boring piece of slag.
    DaveMorris
    • Now patent that proccess

      And sue them all into oblivion.

      That should result in the biggest bunch of richest lawyers in the history of the world, maybe even exceeding the bunch of greedy bankers that are now running the world.
      Ole Man
  • RE: Icahn on Yahoo: I'd hire a 'talented and experienced' CEO

    Hire an experienced CEQ? Of course, as he did with TWA which he ran into the ground the FedEx fashion!!
    marc_90292@...
  • Confiscate Icahn's shares

    He must be sent away to spend remaining days of his life where he have no connection with public life.
    Web Smart