Since Microsoft and Yahoo broke up, a guy - Carl Icahn showed up saying: “Imma sell you suckers to Microsoft, like it or not.”
Summary
Carl Icahn, an investor, corporate assault man and Yahoo shareholder wants to pursue Microsoft deal at $33 per share. Carl sent letter to Yahoo, where he stated this intention. Carl wants to remove current Yahoo board and swap it for Microsoft friendly one. He also wants to Get rid of the poison pill(where Yahoo employees are given big cash parachutes if they get fired or decide to leave Microsoft in case of a take over) and remove any other barriers for Microsoft.
Here’s his original letter to Yahoo!
Dear Mr. Bostock:
It is clear to me that the board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft. It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer. I and many of your shareholders strongly believe that a combination between Yahoo and Microsoft would form a dynamic company and more importantly would be a force strong enough to compete with Google on the Internet.
During the past week, a number of shareholders have asked me to lead a proxy fight to attempt to remove the current board and to establish a new board which would attempt to negotiate a successful merger with Microsoft, something that in my opinion the current board has completely botched. I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies. I have therefore taken the following actions: (1) during the last 10 days, I have purchased approximately 59 million shares and share-equivalents of Yahoo; (2) I have formed a 10-person slate which will stand for election against the current board; and (3) I have sought antitrust clearance from the Federal Trade Commission to acquire up to approximately $2.5 billion worth of Yahoo stock. The biographies of the members of our slate are attached to this letter. A more formal notification is being delivered today to Yahoo under separate cover.
While it is my understanding that you do not intend to enter into any transaction that would impede a Microsoft-Yahoo merger, I am concerned that in several recent press releases you stated that you intend to pursue certain “strategic alternatives”. I therefore hope and trust that if there is any question that these “strategic alternatives” might in any way impede a future Microsoft merger you will at the very least allow shareholders to opine on them before embarking on such a transaction.
I sincerely hope you heed the wishes of your shareholders and move expeditiously to negotiate a merger with Microsoft, thereby making a proxy fight unnecessary.
Sincerely yours,
CARL C. ICAHN
Source
Response By Yahoo!
Dear Carl:
We are in receipt of your letter of June 4th and take issue with its content.
Your letter seriously misrepresents and manipulates the facts
regarding the recent events pertaining to Microsoft and Yahoo!. You
rely on, as “facts,” a series of unsubstantiated allegations from a
complaint filed in a Delaware court which grossly misstate the very
clear record and position established by the Yahoo! Board. Let me
elaborate:
You make reference to our employee retention plan but you
significantly mischaracterize its purpose and its effect. In fact,
you refer to it as a “Poison Pill” which could not be further from
the truth. To set the record straight, the employee retention
program is designed to protect the Company’s assets and value
during a time of uncertainty. The claim that the plan gives each of
Yahoo!’s employees “the right to quit his or her job and pocket
generous termination benefits at any time during the two years
following a takeover…” is just plain wrong. In fact, our plan has
a “double trigger” which means that in order for an employee to be
eligible for benefits under our plan, there would need to be a
change of control AND the employee would need to be terminated
“Without Cause” or resign for “Good Reason.” That means that in
contrast to your assertions, an employee who simply quits his or
her job would receive nothing under our plan.
The retention plan is intended to help us preserve and enhance
shareholder value by allowing Yahoo! to continue to attract and
retain the industry’s best talent, and to allow employees to stay
focused on implementing Yahoo!’s business strategy. In fact, the
plan was adopted in order to protect the value of Yahoo! in
anticipation of a possible acquisition by Microsoft which would
have resulted in a lengthy regulatory review and a significant
period of uncertainty for our employees. In adopting this plan, we
believe Yahoo! did the right thing for its employees and its
shareholders alike.
This plan was fully disclosed at the time of its adoption and should
be no surprise to anyone at this point. It was disseminated to
employees, publicly filed and extensively covered by the media.
Significantly, as you note, Microsoft had indicated that it was
prepared to spend $1.5 billion on retention incentives indicating
that they too recognized that the retention of Yahoo! employees
would have been critical if there had been an acquisition.
Finally, you significantly misrepresent the events of the recent
past. Notably, you accuse us of turning down a $40 per share offer
and “sabotaging” a $33 per share offer. Again, this is patently
untrue. Yahoo!’s Board of Directors has at all times been focused
on maximizing shareholder value. As has been well documented,
Yahoo! has engaged in thorough discussions with Microsoft over a
series of months culminating in Microsoft’s decision to walk away
from a potential acquisition of Yahoo!. Throughout this process,
which has included an exploration of multiple strategic
alternatives with multiple parties, the Board has repeatedly stated
that it is open to any transaction, including a sale to Microsoft,
as long as it is in the best interests of shareholders.
You seem to be under the impression that somehow Microsoft will come
back to the negotiating table for a full acquisition of Yahoo!.
This is puzzling as I know you are aware that we have reached out
to Microsoft proactively and met with them many times in the last
several weeks. During this period, their message to us and to the
markets has been and remains that they are not interested in
pursuing a full acquisition of Yahoo!.
Conspicuously absent from your letter is any credible plan for
Yahoo! other than a repetition of your insistence that the Company
should sell itself to Microsoft. Indeed, your stated view that “the
only way to salvage Yahoo! in the long if not short run is to merge
with Microsoft” demonstrates that you have no other plan and causes
one to wonder what exactly would happen to our Company if you and
your nominees were to take control of Yahoo!.
Sincerely,
Roy Bostock
Chairman of the Board
Source
Here’s Second Letter From Carl
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
Source
Yahoo’s Response
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.
Source
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Two players are in different mediums – Google is the search king and Microsoft has a desktop monopoly. They both want a piece of those core markets. Microsoft has almost no influence in search and Google has no saying in desktop and office software.
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