When Icahn was nominating his own slate of directors for Yahoo!’s Board of Directors, Icahn communicated regularly on his blog regarding why he was doing so.  Hamilton has been writing for the last seven years about hedge funds and even about Icahn.  Hamilton recently published an article from Reuters called Icahn says Yahoo-Google ad deal has merit.

Carl Icahn grew up in Brooklyn, New York, dropped out of medical school, joined the army, then went back to NYC to work on Wall Street.  Icahn & Co. Inc. started in 1968.  Icahn has overtaken positions at RJR Nabisco, Yahoo!, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, USX, American Can, Imclone, Marvel, Federal-Mogul, Kerr-McGee, BEA Systems, Medimmune, and Time Warner.  Icahn is currently worth about $14 billion.

Related Links:
1. NYT
2. The Icahn Report

“While I continue to believe that the sale of the whole company or the sale of its Search business in the right transaction must be given full consideration, I share the view that Yahoo’s valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders,” stated Icahn in a letter regarding the settlement.

Yahoo!’s current board turned down 3 acquisition offers from Microsoft over the last few months while Carl Icahn was pushing Yahoo! to sell themselves.  If Icahn keeps persisting on selling Yahoo! while the rest of the board maintains their position, then there will obviously problems with keeping the search engine company stable.

But in the meantime, Yahoo! has removed the banner that they placed on the homepage that made Icahn look bad.

“On May 15, 2008, Carl Icahn announced his intent to nominate a slate of directors for election at Yahoo!’s 2008 annual meeting of stockholders to take control of Yahoo!. When Mr. Icahn began his proxy contest he had no articulated plan for Yahoo! other than a sale of the Company to Microsoft and today he still lacks a strategy that makes sense for Yahoo! stockholders,” states the article.  “His current plan is a complex restructuring of the Company which includes a sale of Yahoo!’s valuable search business to Microsoft.”

Below a couple of articles, there is a screenshot of all of the companies that Icahn was recently involved with and how their stock is performing.

This chart that Yahoo! put together is slightly irrelevant because it does not factor market conditions.  For example, Blockbuster Inc. suddenly faced intense competition from Netflix.

Personally I don’t want to see Yahoo! bought by a bigger company or have the company broken apart, but this move was pretty low on Yahoo!’s part.  In May 2008, the Yahoo! homepage received over 304 million unique visitors.  This is obviously going to tarnish Carl Icahn’s image.

Legg Mason, a 4.4% owner in Yahoo! announced today that they were going to favor Jerry Yang to remain as the CEO.  And several other investors are shifting towards favoring Yang.  Start the countdown.  Something big is going to happen at Yahoo! in exactly two weeks from today.

Related Links:
TechCrunch
Yahoo.com

Icahn also mentioned that Yahoo! distorted a lot of the facts in their press release.  Below is the letter that Icahn wrote to the shareholders today.

Over the years I have attempted to make changes at many companies but I have yet to see a company distort, omit and twist events and facts in the manner that Yahoo! has done in their press release issued Saturday night, July 12th.

During the last week, Goldman Sachs called me a number of times asking me to relate to them any transaction that Microsoft might be interested in transacting with Yahoo! I discussed with them the possibility of doing a “Search only” deal wherein Microsoft would purchase “Search” from Yahoo! and pay Yahoo! for any searches that would originate from a Yahoo! content page. Yahoo! felt that a deal of this nature would be very interesting, but only if Microsoft would guarantee the revenue that Yahoo! now received. This would obviously be a great deal for Yahoo! because Yahoo! would, for five years, receive a minimum of the $2.3 billion they are currently receiving as long as they continued to supply the page views and affiliate traffic they now had. Heretofore, Microsoft had been unwilling to even come close to making this guarantee. However, after I negotiated with Steve Ballmer for the better part of a week, he agreed to the guarantee. He also agreed to commit $7.7 billion dollars to the transaction (consisting of a $1 billion payment for “Search”, a $2.8 billion loan and a $3.9 billion tender offer to Yahoo! shareholders). Under the transaction, Yahoo! shareholders would receive $16.25 per share in distributions (consisting of cash and securities) and be left with a content company which would have a minimum guarantee of $2.3 billion per year of “Search” revenue from Microsoft and cost saving synergies from exiting the “Search” business that Yahoo! has publicly stated would be $750 million per year (excluding the benefits from reduction of stock compensation and other non-cash items). However, Microsoft believes the synergies from Yahoo! exiting “Search” would be far superior and that Yahoo!’s 2009 GAAP operating income would exceed $2 billion. Microsoft would be making a substantial equity investment in the remaining company at a valuation of $19.50 per share. Furthermore, Yahoo! would be spared the great expense of maintaining “Search” as well as having to spend billions in developing new technology to compete with Google and Microsoft — which it is highly doubtful they would be able to do successfully. Additionally, Yahoo! would be able to avoid the great risk of seeing “Search” continue to lose market share and eventually melt away.

I spoke to Goldman Sachs and Roy Bostock on Thursday concerning the breakthrough with Microsoft. A call to discuss the details of the transaction was then set up among Microsoft, Yahoo! and me on Friday afternoon, July 11th. However to my surprise and consternation, on the Friday call Yahoo!, instead of being interested in the Microsoft offer, seemed to me to be focused on who would be running Yahoo!. Finally, Steve Ballmer suggested that we not spend the rest of Friday afternoon on corporate governance. “First tell us if you like the deal,” he said.

The Yahoo! Press Release

a. Yahoo! in their Saturday night press release makes much of the fact that they were only given 24 hours to decide on the Microsoft offer because of the time constraints relating to the proxy fight, but neglects to mention that they were offered more time if they would be willing to postpone the annual meeting for a short period.

b. Yahoo! conveniently neglects in its press release to tell you about the extremely important above mentioned guarantees that Microsoft was willing to make;

c. Yahoo! tells you in their press release that a condition of the deal was the immediate replacement of the current board and removal of top management. Yahoo! neglected to mention we were willing to discuss keeping a number of the current board members and Jerry Yang as Chief Yahoo!

d. Yahoo tells you the Microsoft proposal precludes the potential sale of all Yahoo! however, they neglect to tell you that that train has left the station in that Microsoft is no longer willing to buy all of Yahoo! with the current board overseeing the company.

e. Yahoo!’s press release states that “this odd and opportunistic alliance of Microsoft and Mr. Icahn has anything but the interest of Yahoo stockholders in mind”, raising the innuendo that I am on Microsoft’s side in this manner. That is patently ridiculous. Since Yahoo! failed to consummate a transaction with Microsoft this year, I have spent hours and hours attempting to get the parties together because I believe that it is beneficial to Yahoo! shareholders to have a deal with Microsoft and I have worked hard trying to make it happen. It is important to note that my funds and affiliates own 70 million shares of Yahoo and own no shares of Microsoft or Google while the current board outside of Jerry Yang owns only the shares they have received from Yahoo for being directors. My interests are aligned with yours and not Microsoft and I think it is in our interest to have this transaction consummated so that we can get value much in excess of the recent and current market for Yahoo! shares.

In June, Microsoft apparently made a $33 per share offer for all of Yahoo! which was met with Yahoo countering at $37, thereby rejecting the $33 offer. Amazingly, before Microsoft decided that it would not buy all of Yahoo! with this board in place, it offered $33 and was turned down. The Yahoo! press release indicates that Yahoo!, in rejecting the current Microsoft proposal, stated that it would do a deal in which the entire company was sold to Microsoft for $33 per share. It is hard to understand why it turned down $33 and is now willing to accept it. It is the same obfuscation that is so prevalent in the rest of the press release. DON’T BE FOOLED.

I believe that, just like the $33 per share offer that was refused by Yahoo! in early June, refusing the Microsoft offer for the Yahoo! search business is also another grave mistake that will be deeply regretted. Our company is on a precipice and our Board seems ready to take the risk of seeing it topple — ARE YOU, THE REAL OWNERS OF YAHOO!, WILLING TO TAKE THE SAME RISK?

The following are the details of the offer that was presented by Microsoft to Yahoo! on Friday.

$/share should: Value to Yahoo! Shareholders No Shares Tender All Shares Tender 1. Yahoo! distributes $12.5B in Asian Assets $9.00 $9.00 2. Yahoo! distributes $3.5B in cash to shareholders comprised of $1B from Microsoft for search, $2.5B of cash on hand $2.50 $2.50 3. Microsoft offers $2.8B in preferred debt at 5% $2.00 $2.00 4. Microsoft tenders $3.9B for Yahoo! shares at $19.50 – $2.77 5. Remaining Shares $16.73 = effective value of shares after tender (86% x $19.50) $19.50 $16.73 Total Value To Yahoo! Shareholders $33.00 $33.00

Search Deal Would Increase Yahoo! EBIT to over $2B in CY09 — remaining share valuation represents 14.5 x GAAP pre-tax income

– Microsoft acquires Yahoo! search assets for $1B in cash

– Microsoft is the exclusive provider to Yahoo! and its partners of paid search, contextual search and algo search for the term of the deal

– Microsoft guarantees Yahoo! the greater of:

(a) 85% net revenues for the first three years, and 70% of net revenues thereafter,

or

(b) $2.3B per year of after-TAC revenues scaled down in event of underperformance of Yahoo! US Homepage views and affiliate rev.

– At the end of 5 years, the agreement expires unless Microsoft or Yahoo! exercise one of the following:

- Microsoft may extend the agreement for 5 years should Microsoft guarantee $3B net revenues per year

- Yahoo! may extend the agreement for 5 years with Microsoft bound to guarantee $1.6B per year

– Yahoo! no longer needs to support the costs of employees or infrastructure of the search business.

– Microsoft will cooperate with Yahoo! to allow Yahoo! to collect data from its web search to support its display advertising business.

– Microsoft will provide Yahoo! with a limited, non-exclusive IP license for use of search IP in support of its display advertising platform.

– Yahoo! will guarantee that Microsoft’s search will retain equal or greater prominence throughout the Yahoo! site as Yahoo! search does today.

Steve Ballmer has made it clear to me that if a new board consisting of my nominees were to be elected, Microsoft would be willing to enter into discussions immediately regarding a transaction along the lines described above. If and when elected, I strongly believe that in very short order the new board would, subject to its fiduciary duties, be approving an offer along these lines for its shareholders.

After Microsoft withdrew their $47.5 billion offer for all of Yahoo!, they offered a $9 billion partial deal and revenue guarantees for the search engine company.  However, Microsoft wanted the advertising partnership to remain exclusive for 10 years.  Yahoo! opted out on Saturday night and decided to stick with the partnership they have with Google.  Google guarantees Yahoo! $800 million a year in revenue through their advertising partnership.

Source: Reuters

On Friday night, Microsoft Corporation (NASDAQ:MSFT) and Carl Icahn proposed a deal to Yahoo! Inc. (NASDAQ:YHOO) and wanted an answer back within 24 hours.  Yahoo! said no.  What was the deal?  The deal was that Microsoft would buy Yahoo!’s search business and then allow Icahn to choose his own board of directors for the rest of the company.

Yahoo! worked with financial advisers and a legal team to decide whether the deal was feasible or not.  The Microsoft offer just wasn’t sweet enough.  The reasons why Yahoo! turned down Microsoft again was because:

* Yahoo!’s deal with Google Inc. (NASDAQ:GOOG) was superior in financial value and less riskier.
* If Microsoft/Icahn took over Yahoo!, the search engine company would not be able to be sold for a full & fair price.
* The new slate of directors Icahn selected has no working knowledge dealing with Yahoo!’s businesses.
* Removing all of Yahoo!’s board would destabilize the company for at least the amount of time that it would take to gain regulatory approval for the deal to go through.

Yahoo! did admit that this new deal has improvements over the past offerings, but it still would not be in the interest of shareholders.  The reason is that the revenue guarantees suggested in the Microsoft deal are below the search revenue that Yahoo! is expecting to make with it’s Google deal.  Yahoo!’s success would be extremely dependent on Microsoft’s ability to monetize search.  And another reason why Microsoft’s deal isn’t worth it is because they are not considering the incremental value of Yahoo!’s search algorithms and intellectual property.

The usual timeline is available after the jump.

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!
July 11, 2008: Microsoft gives Yahoo! 24 hours to decide on a new deal: Microsoft would buy Yahoo!’s search business and then allow Icahn to choose his own board of directors for the rest of the company.
July 12, 2008: Yahoo! says no again.

“While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit,” stated Icahn.  This is a more positive statement than saying that Yahoo! created a doomsday device to prevent the Microsoft deal from happening. 

“I continue to be extremely disappointed with the Yahoo management, but the Google deal might have some merit and seems to be better then the alternative deal proposed by Microsoft.”

Will Icahn continue to push for his slate of a new board of directors?  We’ll find out on August 1st.

Yahoo! Inc. (NASDAQ:YHOO) was cornered by Microsoft Corporation (NASDAQ:MSFT),  shareholders, and Carl Icahn over the last few months.  After months of negotiating a bid price for Microsoft and having to deal with Carl Icahn, Yahoo! decided to sign an advertising partnership with Google Inc. (NASDAQ:GOOG).  Was it a good idea or will there be negative implications? 

A Lost Opportunity for Yahoo! in 2001
At one point Yahoo! had the chance to buy Google, when it was still blossoming into the search and ad powerhouse that it is today.   Larry Page and Sergey Brin made a $3 billion offer to former Yahoo! CEO, Terry Semel in 2001, but he turned it down. 

Three years later Google filed for an IPO and continuously pulled marketshare away from Yahoo!  Google became a $180 billion powerhouse and Yahoo! shareholders lost confidence in Terry Semel.  In June 2007, Semel resigned after 6 years as CEO.  Jerry Yang stepped up as CEO and said that he’ll be able to turn around the company in 100 days.  This was around the same time that Brad Garlinghouse wrote a public memo about how Yahoo!’s own divisions were competing with each other:

“We end up with competing (or redundant) initiatives and synergistic opportunities living in the different silos of our company such as:
• YME vs. Musicmatch
 • Flickr vs. Photos
 • YMG video vs. Search video
 • Deli.cio.us vs. myweb
 • Messenger and plug-ins vs. Sidebar and widgets
 • Social media vs. 360 and Groups
 • Front page vs. YMG
 • Global strategy from BU’vs. Global strategy from Int’l”

Yahoo! had not been able to lickir the wounds fast enough to prevent Google from dominating the market. Yang failed to get back the trust of the shareholders.  Yahoo! did still have the millions of loyal users and the #1 website on the planet, but without shareholder trust, the overall company value declined. 

Microsoft, the software company with a fat wallet became fed up with Yahoo!’s lack of a game plan so they stepped in and made a $44 billion offer.  Yahoo! tried to pull a Google and ask for more money, but then Microsoft walked away from a deal.  It’s like 2001 all over again and Google walked away as the winner once again by signing a partnership with Yahoo!.

Yahoo! will be using Google AdSense to place Google Ads all on their online properties.  Google wrote a blog post about the non-exclusive partnership on their blog.

What are the implications?
The first obvious implication is the stock price.  After yesterday’s announcement, Yahoo!’s stock plummeted and caused them to lose a few billion off of their market cap.  On August 1, Yahoo!’s shareholders will come together and decide whether this was a smart choice for the company. 

The second implication is that Yahoo! is allowing themselves to become dependent on a third party to make money.  If Yahoo! becomes comfortable on this dependency, how will they be able to compete?  Google compares it to Toyota selling hybrid technology to GM and Canon providing laser printer engines to HP. 

An implication against Google is that they are giving Yahoo! the opportunity to make more money.  And Yahoo! wants to make more money so that they can build themselves to be more competitive against Google.  So why allow it?  All I know is that Eric Schmidt said that “we like them very much [CNET].” 

Yahoo! still has the potential to gain the confidence from their shareholders whether it is through rebranding themselves, refurbishing their advertising strategy, or even by allowing Icahn to select executive board members at the August 1 shareholder meeting.

The timeline of the Microsoft & Yahoo! saga is after the jump.

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!  Yahoo! sends back a quick response to Icahn saying that his letter is “ill-advised.”
June 12, 2008: Yahoo! signs an advertising outsourcing deal with Google.

  Leaving aside Mr. Icahn’s inaccurate interpretation of our retention
  plan, we again note that he has no credible plan to operate Yahoo!.
  We believe that Mr. Icahn’s suggestion that we cancel our retention
  plan would have a destabilizing impact on Yahoo! and would clearly
  not be in the best interests of our shareholders. Furthermore, his
  suggestion that we put out a price publicly to see if Microsoft will
  alter its stated position is ill-advised. As we have stated numerous
  times publicly and privately, we are open to any transaction
  including a sale to Microsoft if it is in the best interests of
  shareholders.

For those who don’t want to interpret the letter above, I’ll give a quick summary:
1.) Icahn doesn’t have a credible plan for Yahoo!
2.) Cancelling the severance packages built into the Microsoft Corporation (NASDAQ:MSFT) bid would make the company unstable post-acquisition.
3.) Asking Microsoft to buy the company whole again is “ill-advised” since Microsoft may no longer be interested.
4.) Yahoo! is still open to a sale if the shareholders agree.

The timeline and information source of the Yahoo! & Microsoft saga is available after the jump.

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!  Yahoo! sends back a quick response to Icahn saying that his letter is “ill-advised.”

Information Source:
[1] Yahoo! Inc. Press Release: Yahoo! Inc. Statement on Carl Icahn’s Letter of June 6, 2008

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
    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.
    — 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,

    CARL C. ICAHN

 

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!