Life of Guangzhou - Icahn Moves to Replace Yahoo Board, Restart Microsoft Talks

Yahoo fired back at corporate raider Carl Icahn, seen here in 2005, on Thursday, saying he lacks understanding of the Microsoft takeover try and should not follow through on a vow to oust Yahoo's board. (AFP/Getty Images/File)

WASHINGTON - Yahoo and Carl Icahn dueled Thursday as the corporate raider vowed to overthrow the firm's board and the Internet pioneer fired back that the billionaire misunderstood Microsoft's failed takeover bid.

Icahn said in an open letter that Yahoo "completely botched" merger talks with Microsoft and that he is amassing Yahoo stock to oust the board of directors at an annual shareholders meeting on July 3.

"Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal," Yahoo board chairman Roy Bostock wrote in an open response to Icahn.

"We do not believe it is in the best interests of Yahoo stockholders to allow you and your hand-picked nominees to take control of Yahoo for the express purpose of trying to force a sale of Yahoo to a formerly interested buyer who has publicly stated that they have moved on."

Bostock said board members met more than 20 times with Microsoft after the US software giant offered to buy Yahoo for 44.6 billion dollars in stock and cash on January 31.

"Throughout this process our board kept an open mind and an open ear," Bostock wrote.

Icahn said in his letter that he had acquired 59 million shares of Yahoo -- around four percent of its capital -- and had formed a 10-person slate which will stand for election against the current board.

"It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72 percent premium over Yahoo's closing price of 19.18 dollars on the day before the initial Microsoft offer," Icahn wrote.

He added that he is seeking antitrust clearance to buy as much as 2.5 billion dollars' worth of Yahoo shares, which would give him seven percent of the company.

"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."

He added that "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."

Icahn said a combination between Microsoft and Yahoo "is by far the most sensible path for both companies."

Greg Sterling, an analyst at Search Engine Land, said if Icahn succeeds, the new board would move immediately to restart talks with Microsoft.

"Assuming Microsoft were still interested it would be in an arguably stronger position than it was with Roy Bostock, (chief executive) Jerry Yang, et al, in control of Yahoo," Sterling said.

"Microsoft might accordingly be able to lower the per-share bid it would be willing to pay."

The 72-year-old Icahn, an activist shareholder who has targeted companies ranging from airline TWA to General Motors, was ranked number 46 by Forbes magazine in its list of global billionaires, with a net worth of 14 billion dollars.

"He is probably going to be the Yahoo board's worst nightmare," Silicon Valley analyst Rob Enderle said of Icahn.

"He is tenacious, smart, and knows how to play the media. I wonder how many of the board members have been through this as many times as he has."

Earlier this month, Microsoft yanked its proposal for Yahoo, saying the struggling Internet pioneer refused to budge despite the software giant upping its offer to nearly 50 billion dollars.

Microsoft's bid would have brought together the world's biggest software firm and second-largest Internet search firm in an effort to better compete with Google, which has been gobbling up an increasing share of the lucrative Web search market.

Icahn said in his letter that Yahoo's board "acted irrationally and lost the faith of shareholders and Microsoft."

"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," he said in his letter.

(by Rob Lever)

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