Microsoft Still Interested In Buying Yahoo! If A New Board Is Elected

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[Update: 12:05PM EST: Microsoft issued a statement confirming their discussion with Icahn]

Carl Icahn wrote a letter to the shareholders of Yahoo! Inc. (NASDAQ:YHOO) once again this morning stating that he discussed the buyout of the search engine company by Microsoft Corporation (NASDAQ:MSFT).  Icahn mentioned that he spoke frequently with Steve Ballmer and Kevin Johnson about the transaction.

The letter basically says that Microsoft walked away from the negotiation table because they weren’t confident in the current Yahoo! Board of Directors.  But Microsoft would still be interested in a full acquisition if a new Board of Directors were elected at Yahoo!

Below is the full letter that Icahn wrote:
Carl C. Icahn
767 Fifth Avenue, 47th Floor
New York, NY 10153

July 7, 2008

Dear Yahoo! Shareholders:

During the past week I have spoken frequently with Steve Ballmer, CEO of Microsoft. Several of our conversations have lasted as long as an hour. Also, a few of our discussions have taken place while other top executives, such as Kevin Johnson, participated. Our talks centered on the industry in general but, more importantly, on how Yahoo! and Microsoft can do a transaction together. Steve made it abundantly clear that, due to his experiences with Yahoo! during the past several months, he cannot negotiate any transaction with the current board. His logic is simple. If and when a transaction was consummated, Microsoft would be guaranteeing a great deal of capital at closing. However, a transaction could take at least nine months and perhaps longer to obtain regulatory clearance in the U.S., Europe, and elsewhere. During that period, if the current board and management team of Yahoo! mismanage the company (and their recent track record is far from reassuring), Microsoft would be putting its money at risk and a great deal could be lost.

For example, in a transaction to purchase the whole company, a very large amount of capital would be due at closing. Even in an “alternate” transaction, where just the “Search” assets were purchased, large guarantees would have to be made and, again, large sums could be lost if the company was mismanaged. Microsoft perceives this risk may be quite high with the current board and management in place. However, Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo!, such as either a transaction to purchase the “Search” function with large financial guarantees or, in the alternative, purchasing the whole company. He stated that Microsoft would be willing to enter into discussion immediately if the new board that has been nominated were elected. While there can be no assurance of a future transaction, as many of you know, I have negotiated successfully a large number of transactions over the past years. If and when elected, I strongly believe that in very short order the new board would, subject to its fiduciary duties, be presenting to shareholders either a purchase offer for the whole company or a very attractive offer to purchase “Search” with large guarantees. I hope to continue to be speaking to Steve over the next few weeks; however, since I do not as yet represent the Yahoo! board, both Steve and I do not wish to get into details over price, or even which of these transactions makes the most sense.

Much has been said about how badly the Yahoo! board has “botched up” negotiations with Microsoft over the past months. There is no need to keep pointing out the mistakes I believe Yahoo! made by not immediately taking a $33 offer made by Microsoft. But one thing is clear — Jerry Yang and the current board of Yahoo! will not be able to “botch up” a negotiation with Microsoft again, simply because they will not have the opportunity.

Our company is now moving toward a precipice. It is currently losing market share in its “Search” function; our current Board has failed to bring in a talented and experienced CEO to replace Jerry Yang and return Jerry to his role as Chief Yahoo!, and currently it is witnessing a meaningful exodus of talent. It is no secret that Google (which hired a great operator as CEO) continues to dramatically outperform Yahoo!. According to publicly available information, Google’s income from operations grew 59% per year over the last two years while Yahoo!’s shrank 21% per year. However, none of the above has caused the Yahoo! board to hesitate in paying themselves $10,000 per week. IT IS TIME FOR A CHANGE.

If elected, I have little doubt that the new board, subject to its fiduciary duties, will do what the current board will not do, i.e.,

— Immediately start negotiation with Microsoft to sell the whole company or, in the alternative, sell “Search” with large guarantees.

— Move expeditiously to replace Jerry Yang with a new CEO with operating experience.

Sincerely yours,


Below is the timeline of the Microsoft and 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! that 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!  Yahoo! sends back a quick response to Icahn saying that his letter is “ill-advised.”
July 2, 2008: Reports indicate Microsoft is still interested in a new deal with Yahoo!
July 7, 2008: Carl Icahn writes a letter to Yahoo! shareholders indicating that Microsoft is still interested in a full acquisition assuming that a new board is elected at Yahoo!

This article was written by Amit Chowdhry. You can follow me at @amitchowdhry or on Google+ at

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