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Yahoo’s board takes its case to shareholders

Yahoo Inc. is starting to meet with its major shareholders in hopes of fending off activist investor Carl Icahn.
/ Source: The Associated Press

Yahoo Inc. began pressing a case to major shareholders Monday that its board and management deserve a chance to prove they made the right move when they rejected a $47.5 billion takeover offer from Microsoft Corp.

The missed opportunity to sell to Microsoft infuriated many Yahoo shareholders, prompting activist investor Carl Icahn to agitate for replacing Yahoo’s nine directors and reviving negotiations with Microsoft. If he gains control of the board, Icahn intends to fire Yahoo co-founder Jerry Yang as chief executive.

In response, Yahoo has assembled a 32-page shareholder presentation to elaborate on the points it has been emphasizing since Microsoft withdrew its bid May 3.

Investors will decide the dustup in a vote scheduled Aug. 1 at Yahoo’s annual meeting. That leaves another month for the Sunnyvale, Calif.-based company and Icahn to disparage each other.

And with Yahoo shares sliding back toward $19.18 — their value before Microsoft’s bid — Yahoo’s management is facing even more pressure to end the financial malaise that triggered the takeover bid in the first place. Yahoo shares fell 44 cents to $20.89 in Monday’s afternoon trading.

Icahn didn’t respond to a request for comment Monday, but he wrote on his blog last week that he would share his latest opinions on Yahoo “shortly.”

Yahoo argues that entrusting the company’s fate to Icahn would be foolhardy because his strategy centers on resurrecting a dead deal.

Its breaking point came after Yang and Microsoft CEO Steve Ballmer couldn’t agree on a price. Ballmer had orally offered $33 per share, but Yang wanted $37 per share — a price that Yahoo’s stock hasn’t reached in nearly 2½ years.

( is a joint-venture of Microsoft and NBC Universal.)

Since Microsoft walked away, Yahoo said it tried to reopen sales negotiations in meetings on May 17 and June 8, only to be told “unequivocally” that the software maker no longer is interested in buying Yahoo in its entirety.

Hoping to dispel any perception that it mishandled the Microsoft negotiations, Yahoo’s shareholder presentation lists the dates of at least eight meetings that its management or other representatives held with Microsoft before the bid was withdrawn.

Yahoo also wants to raise doubts about the sincerity of Microsoft’s bid, arguing that its unsolicited suitor was “unresponsive and inconsistent” during the first three months of negotiations.

“The record casts doubt on whether Microsoft was ever committed to a whole company acquisition,” Yahoo asserted in the shareholder presentation.

But Ballmer appeared to leave little doubt he prized Yahoo’s whole franchise when he submitted his initial bid of $44.6 billion, or $31 per share. The Jan. 31 offer was 62 percent above Yahoo’s stock price at the time. Microsoft made its oral offer of $47.5 billion May 2.

“This is simply revisionist history,” Microsoft spokesman Frank Shaw said Monday about Yahoo’s account of events.

To move on from the Microsoft bid, Yahoo hopes for a major boost from a planned advertising partnership with Internet search leader Google Inc.

By relying on Google’s superior technology to show some of the ads alongside its search results, Yahoo believes it can increase its annual revenue by about $800 million and generate another $250 million to $450 million in annual cash flow.

Although the Google partnership still could be blocked by antitrust regulators, Yahoo believes it offers more value than an alternative deal proposed by Microsoft. The software maker offered $9 billion for Yahoo’s online search operations and a roughly 16 percent in stake in the rest of Yahoo’s business.

In its shareholder presentation, Yahoo argues Microsoft’s partial offer is a “bad choice” because it wouldn’t be as lucrative or as flexible as the Google partnership.