Icahn lays down gauntlet to Yahoo!; CBS set to acquire CNET; Airlines eye mergers, face obstacles

By Stephanie N. Rotondo

Portland, Ore., May 15 - There was no more speculation about what Carl Icahn's intentions were regarding Yahoo! Inc. and Microsoft Corp. on Thursday.

In an open letter to Yahoo's board of directors, Icahn argued for a merger with Microsoft, calling it the "superior alternative." Icahn also took the company's board and management to task for not allowing shareholders a say in the matter.

And though Microsoft claims it has gone to greener pastures, investors seemed to think that the deal could rematerialize and both companies saw their stock edge higher.

Meanwhile, CBS Corp. announced its intention to acquire CNET Networks - for a 44% premium. According to one analyst, the offer would cause elation in some, but CNET's largest shareholder seems to be on the fence about it. Regardless, CNET's shares were boosted, though CBS's stock slipped.

With all the renewed scuttlebutt about airline industry consolidation, many network carriers are looking to combine in an effort to cut costs while increasing services. Such is the case with Northwest Airlines and Delta Airlines Inc., well on their way to a merger. United Airlines is also reportedly courting U.S. Airways - and Continental Airlines Inc. But the question remains: Will consolidation help the industry overcome the obstacles facing them? One source says no.

Icahn states his plan of attack

New life was breathed into the Yahoo-Microsoft battle as Carl Icahn made his intentions clear.

In a letter to Yahoo's board of directors, Icahn berated the group for acting "irrationally."

"It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis," he wrote.

Icahn said the he had been approached by a number of shareholders who wanted him to wage a proxy fight against the board. As such, Icahn submitted a list of 10 potential nominees. Icahn further urged the board to allow shareholders the right to "opine" on the matter.

As Icahn officially entered the ring, investors seemed to react positively. Shares of Yahoo (Nasdaq: YHOO) gained 79 cents, or 2.91%, to $27.93. Microsoft's (Nasdaq: MSFT) stock closed up 55 cents, or 1.85% to $30.48.

Even though Yahoo has repeatedly rebuffed Microsoft's offer - and Microsoft has seemingly thrown up its hands - one analyst has doubts that the parties have truly moved on.

"Body language from Yahoo and Microsoft do not suggest that both companies have really moved on," wrote Sandeep Aggarwal, analyst with Collins Stewart, in a research report released Thursday. "Had both companies moved on, we would have expected Yahoo to announce their relationship with Google and Microsoft to be acquisitive and announce some radical changes in its search strategy - and neither have happened so far."

Aggarwal also noted that he believed it to be "less likely" that Microsoft will once again approach Yahoo, but more likely that Yahoo shareholders might have to reopen talks.

As has previously been reported, this is not the first time Icahn has brought adversaries together successfully. He was pivotal in the BEA deal with Oracle a few years back.

And, without the deal, Aggarwal agreed with Icahn in respect to the company's future performance.

"We believe without the hope for the deal with Microsoft, Yahoo is worth $23," he said.

CBS wants some CNET action

CBS announced it had entered into an agreement to acquire CNET Networks on Thursday for a 44% premium.

The merger of the companies will make CBS a major internet player. CBS has offered $11.50 per share in a cash tender offer.

The news helped CNET's (Nasdaq: CNET) shares gain a fair bit, up $3.43, or 43.14%, to $11.38. CBS's (NYSE: CBS) stock, however, slipped 44 cents, or 1.77%, to $24.38.

Some news reports indicated that the market believed CBS's offer to be fair despite the heavy premium. But one analyst said that was not the issue that concerned him.

CNET has been battling with its largest shareholder, JANA Partners, for the last few months in Delaware Chancery Court. JANA took the company to court in an effort to obtain seats on the company's board of directors. Shareholders have reportedly been upset over the company's lackluster performance.

But the fact that JANA is "reviewing" the offer made the analyst hesitate.

"Most people would be ecstatic over [the offer]," he said. "But the fact that they are reviewing it tells me [JANA was] initially were not happy with it."

"Their response will be interesting," he added. "My eye is on JANA."

"The spread is so small it looked atypical," he said. "Perhaps the spread will widen or the deal price will get raised."

Airlines eye mergers, face problems

As the airline industry faces some heady obstacles, more and more network carriers are looking at ways to broaden their scope.

First of all, Northwest Airlines and Delta Airlines are one step closer to finalizing their deal, as the pilots union has agreed to support the plan. On Wednesday, the companies both faced the firing squad that is the House Transportation and Infrastructure Committee's Subcommittee on Aviation.

"I felt bad for them," one analyst said. "It was a very one-sided hearing, and they were being criticized the whole time."

Still, the analyst said, the committee will not get to vote on the merger - that is a job for the Department of Justice.

"It doesn't really matter how much Rep. Jim Oberstar objects," he said. "The consensus is they will get approval."

As such, he noted that "other airlines are rushing to make their deals under this administration."

Such is the case with United Airlines, which has been shopping around for the best way to compete against a combined Northwest-Delta company.

Reports have indicated that United is in talks with U.S. Airways to merge the companies. But United is also pursuing Continental Airlines as an "alliance" partner.

While it may seem strange that United is courting several suitors, Bob Mann, an independent airline consultant, called it "typical."

"It is typical to make sure you do your due diligence," he said. However, it could become a problem if one party forces another into a "him or me" decision.

Still, both United and U.S. Airways have a desire to go forward.

"I think there is a desire on both parts to make consolidation talk consolidation reality," Mann said.

But the question remains: will consolidation solve the problems facing the industry?

"It will be different, but it will not solve any fundamental problems," Mann said. Though industry competitiveness might decrease, prices may increase.

"It's a bad situation," he said.

"I think the airlines need to merge and get rid of all the old gas-sucking airplanes," said one market source. "The airlines just need to raise prices."

Northwest Airlines' (NYSE: NWA) shares rose 4 cents, or 0.43%, to $9.25, while Delta's (NYSE: DAL) stock was likewise up 4 cents, or 0.50%, to $7.99. United Airlines shares (Nasdaq: UAUA) gained 21 cents, or 1.48%, to $14.38. U.S. Airways closed up 35 cents, or 4.85%, to $7.60 and Continental Airlines equity moved 27 cents higher, or 1.47$, to $18.65.

Blockbuster: Circuit City still on the table; EA offer set to expire

Blockbuster Inc. released better-than-expected first-quarter numbers Thursday. During a conference call, company management said it was still considering pursuing Circuit City Stores Inc., and planned to make a decision within a matter of weeks.

Shares of Blockbuster closed 1 cent higher, or 0.33%, to $3.08, while Circuit City stock gained 2 cents, or 0.40%, to $5.05.

Electronic Arts Inc.'s offer to buyout Take-Two Interactive is slated to expire Friday at noon. There are some expectations that the offer will be extended, though the price will remain the same.

Electronic Arts' (Nasdaq: ERTS) stock ended lower by $1.26, or 2.39%, to $51.52 and Take-Two's shares closed 36 cents better, or 1.33%, to $27.33.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.