Icahn begins proxy battle with Yahoo!, seeks to buy $2.5 billion of additional shares

By Lisa Kerner

Charlotte, N.C., May 15 - Carl C. Icahn said he is leading a proxy fight with Yahoo! Inc. at the behest of fellow shareholders after Yahoo!'s current board "botched" a merger with Microsoft Corp.

According to his letter to Yahoo!'s board, Icahn has:

• Purchased 59 million shares and share-equivalents of Yahoo! in the past 10 days;

• Formed a 10-person slate of nominees to stand for election against Yahoo!'s current board; and

• Sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo! stock.

In the letter, Icahn accused Yahoo!'s board of acting "irrationally" and called the board's failure to bring the Microsoft offer to its shareholders "unconscionable."

Icahn said Microsoft's $33-per-share bid for Yahoo! is a superior alternative to Yahoo!'s prospects of operating as a standalone company.

The slate of nominees proposed by and including Icahn are:

• Lucian A. Bebchuk - professor of law, economics and finance as well as the director of the program on corporate governance at Harvard Law School;

• Frank J. Biondi Jr. - senior managing director of WaterView Advisors LLC;

• John H. Chapple - president of Hawkeye Investments LLC;

• Mark Cuban - founder of HDNet and majority and controlling owner of National Basketball Association franchise the Dallas Mavericks;

• Adam Dell - managing general partner of Impact Venture Partners;

• Keith A. Meister, principal executive officer and vice chairman of the board of Icahn Enterprises G.P. Inc.;

• Edward H. Meyer, chairman, chief executive officer and chief investment officer of Ocean Road Advisors, Inc.;

• Brian S. Posner, private investor; and

• Robert K. Shaye, co-chairman and co-CEO of New Line Cinema.

In response to the letter, Yahoo! wrote back to Icahn saying his plan "reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal."

Chairman Roy Bostock added: "A fair-minded review of the factual record leads to one conclusion: that Yahoo!'s ten-member board, comprised of nine independent directors along with Yahoo! CEO Jerry Yang, remains the best and most qualified group to maximize value for all Yahoo! stockholders."

Noting that there is currently no offer for Yahoo! on the table, Bostock continued: "That said, we have been crystal clear in our stance that we have been and remain willing to consider any proposal from any party including Microsoft if it offers our stockholders full and certain value."

Throughout the process, Bostock said the independent directors were focused on the goal of best maximizing stockholder value.

"After considering input from its financial advisers the board unanimously concluded that Microsoft's proposal significantly undervalued Yahoo! and was, therefore, not in the best interests of the company or our stockholders," he wrote.

Bostock said the board made plenty of effort "to engage Microsoft in meaningful discussions."

It instructed Yang that it would be prepared to sell at $37 a share if there was reasonable certainty of value and certainty of closing.

It was previously reported that Yahoo! shareholders filed a consolidated class action lawsuit in Delaware against CEO Jerry Yang and the other members of the Yahoo! board of directors for "thwarting" Microsoft's merger proposal.

Microsoft was willing to raise its bid to $33 per share, Microsoft CEO Steve Ballmer said in a May 5 letter to Yang.

The Redwood, Wash., software company originally offered to acquire Yahoo! for $31 per share, or some $44.6 billion, a prior news release said.

Yahoo! provides internet services. The company is based in Sunnyvale, Calif.

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