Carl Icahn Sends Yahoo! A 5 Point Game Plan

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A couple of days ago Roy Bostock, Chairman of Yahoo! responded to Carl Icahn as misrepresenting and manipulating company facts about Yahoo!  Bostock asked Icahn in his letter what would happen to Yahoo! if Icahn and his nominees of a new Yahoo! Board takes over the company.  Today Carl Icahn answered that question with another letter containing a 5 point plan for Yahoo!

Here is a quick summary:
1.) Replace the “poison pill” severance plan with a more acceptable alternative
2.) Ask the new board to hire a talented/experienced CEO that would replicate Eric Schmidt’s success with Google and replace Jerry Yang.
3.) Inform Microsoft that Yahoo! is only willing to accept an acquisition worth $33 or higher per share otherwise alternative transactions are over.
4.) Ask the new board to sell Yahoo! to Microsoft in a cooperative manner.
5.) If Microsoft doesn’t want to acquire, setup an ad search deal with Google.

Below is the full letter:

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

    June 6, 2008

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

    — 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?

    — 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?

    — 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,



And below is the timeline of the Microsoft & Yahoo! saga:

June 2007: Former Yahoo! CEO, Terry Semel Resigns, Jerry Yang steps up.
July 2007: Yang makes a 100 day plan to get Yahoo! off the ground again.
February 1, 2008: Microsoft makes an unsolicited offer to Yahoo! for $44.6 billion.
February 9, 2008: Yahoo! passes on Microsoft offer.
February 11, 2008: Rumor is that Yahoo! may merge with AOL.
February 12, 2008: Microsoft CEO, Steve Ballmer sends a letter to Yahoo! “Microsoft reserves the right to pursue all necessary steps to ensure that Yahoo!’s shareholders are provided with the opportunity to realize the value inherent in our proposal.”
February 13, 2008: Layoff notices are given at Yahoo! Ryan Kuder Twitters the entire event.
April 4, 2008: Rumors begin to appear that Microsoft is deciding to pull the offer.
April 5, 2008: Microsoft sends a letter to Yahoo! stating that they may work out a separate deal with shareholders if a decision isn’t made.
April 7, 2008: Yahoo! Announces their AMP! advertising platform and stated that they want more money from Microsoft.
April 9, 2008: Yahoo! states that they may be interested in an ad outsourcing deal with Google.
April 10, 2008: Rumors appear that News Corp. AOL, and Google all want to arrange deals with Yahoo!
April 12, 2008: Capital Research & Management invests $2 billion more in Yahoo! shares giving them ownership of $6 billion worth of the company.
April 30, 2008: Rumor appears Microsoft increases the amount that they’re willing to spend.
May 4, 2008: Microsoft walks away from the negotiation table after YahoO! demands too much of a high price for Microsoft.
May 4, 2008: Yahoo! responds by saying that through this experience, Yahoo! emerged as a stronger, more focused company.
May 7, 2008: Yahoo! & Google become more serious about Google Ads appearing on Yahoo!
May 14, 2008: Major Yahoo! shareholder, Carl Icahn steps in and calls the Yahoo! Board irrational.
May 20, 2008: Microsoft makes an offer to buy Yahoo!’s Search Advertising Business for an undisclosed amount.
May 23, 2008: Yahoo! Director, Edward Kozel resigns to “spend more time with family.”
May 23, 2008: Yahoo! postpones shareholder meeting for the second time.
May 28, 2008: Jerry Yang claims company isn’t under siege and Microsoft is no longer interested in buying out the whole company at All Things D conference.
May 30, 2008: FTC officially approves Icahn’s large purchases of Yahoo! stock.
June 2, 2008: Yahoo! court documents state that Yahoo! was planning to turn down a deal with Google one day before the Microsoft bid.
June 3, 2008: Carl Icahn indicates if proxy battle is successful, he’d want Jerry Yang out of CEO position.
June 4, 2008: Yahoo! Board decides annual shareholder meeting date to be held on August 1. 
Icahn sends Yahoo! a letter explaining that he believes Yahoo! CEO, Jerry Yang sabotaged the Microsoft bid.  Roy Bostock responds to Icahn by saying that Microsoft is no longer interested in a full acquisition.
June 6, 2008: Carl Icahn sends a letter to Roy Bostock with a 5 point plan detailing what a new board would do for Yahoo!

Information Source:
[1] PRNewsire: Icahn Sends Open Letter to Board of Directors of Yahoo!

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