Carl Icahn sent his howler to the Yahoo board (full text below). Lots of fun we’re-mad-as-hell rhetoric–the board’s actions have been “insulting” and “deceitful”–and one actual constructive point:
Icahn suggests that, as a way of luring Microsoft back to the table, Yahoo rescind the $2.4 billion employee bonanza severance plan that Jerry & Co. implemented to create a roadblock to a Microsoft takeover.
Icahn goes to great lengths to feign shock at the outrageous details of this plan (some of which were revealed in scandalous colour in the lawsuit that was unsealed two days ago). Most of the key details, of course, have been public knowledge since the plan was announced. Also, since the “$2.4 billion” value assumes that every Yahoo employee will quit, the actual cost to Microsoft from the plan is far less, probably in the hundreds of millions. Still, eliminating the plan would make Yahoo less expensive for Microsoft.
This said, Icahn’s letter does mark the first constructive suggestion he makes for getting Microsoft back to the table without giving the company away. Striking the severance plan would make Yahoo less expensive. It would also demonstrate Yahoo’s commitment to working with Microsoft during the regulatory approval process. In so doing, it would give Microsoft a way to save face but still pay $33 for Yahoo.
Importantly, even Icahn admits that a sale to Microsoft might now be a long shot:
despite your actions to date, there is still some possibility that you can resuscitate a Microsoft offer for the company.
“Some possibility.” Even with the severance-plan recission, hardly sounds like a lay up.
– I am amazed at the length Jerry Yang and the Yahoo board have gone to in order to entrench their positions and keep shareholders from deciding if they wished to sell to Microsoft.
– Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies. I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board.
– I and many of your shareholders believe that the only way to salvage Yahoo in the long if not short run is to merge with Microsoft. [“Salvage”–gotta like that]
Here are some more details on the severance plan:
Yahoo Lawsuit Unsealed, Scandalous Details Emerge:
How Much Will Yahoo’s Severance Plan Cost Microsoft?
Yahoo Pads Employees’ Pockets at Microsoft’s Future Expense
Carl C. Icahn
ICAHN CAPITAL LP
767 Fifth Avenue, 47th Floor
New York, NY 10153
June 4, 2008
701 First Avenue
Sunnyvale, CA 94089
Dear Mr. Bostock:
I have long been cynical about the effectiveness of many of the boards and
CEOs in this country and as a result the inability of our companies to compete.
I have constantly complained about how far CEOs and boards will go in order to
retain their jobs, yet even I am amazed at the length Jerry Yang and the Yahoo
board have gone to in order to entrench their positions and keep shareholders
from deciding if they wished to sell to Microsoft.
According to details in a complaint that I became aware of yesterday
(details Yahoo fought to keep under seal), Jerry Yang and a majority of the
board went to inordinate lengths to sabotage a Microsoft bid. The complaint
states: “Viewing employee retention as Microsoft’s Achilles heel, Yang
engineered an ingenious defence creating huge incentives for a massive employee
walkout in the aftermath of a change in control. The plan gives each of Yahoo’s
14,000 full-time employees the right to quit his or her job and pocket generous
termination benefits at any time during the two years following a takeover, by
claiming a “substantive adverse alteration” in job duties or responsibilities.”
The damage to Microsoft “is compounded by the fact that Yahoo’s thousands of
engineers, known as “Technical Yahoos!,” have detailed job responsibilities and
Most importantly, Microsoft might never be able to trust a CEO and board
who, while claiming to be negotiating in good faith, went behind their back and
adopted a “plan” which not only sabotages any Microsoft acquisition but went so
far as to completely disable its own ability to rescind the “plan” as long as
Microsoft’s offer remains pending. Until now I naively believed that
self-destructive doomsday machines were fictional devices found only in James
Bond movies. I never believed that anyone would actually create and activate one
in real life. I guess I never knew about Yang and the Yahoo Board. In my
opinion, it will be extremely difficult for Microsoft or other companies to
trust, work with and negotiate with a company that would go to these lengths.
It is insulting to shareholders that Yahoo for the last month has told us
that they are quite willing to negotiate a sale of the company to Microsoft and
cannot understand why Microsoft has walked away. However, the board conveniently
neglected to inform shareholders about the magnitude of the plan it installed
which made it practically impossible for Microsoft to stay at the bargaining
table. Could this have been the problem?
Even more deceitful are Yahoo’s actions toward its own employees, for whom
you claimed to have set up the “plan”. Management neglected to mention to these
same employees that Microsoft in its proposals had earmarked $1.5 billion of
retention incentives (representing over $100,000 per employee) meant to allay
any employee concerns.
Ironically, according to the complaint, this is not the first time that
Yahoo has denied shareholders the opportunity of selling to Microsoft at a large
premium. According to the complaint, in January 2007 Microsoft offered to
purchase Yahoo at $40 per share but the company rejected that proposal. On
January 31, 2008, Steve Ballmer emailed a letter to Jerry Yang and Roy Bostock
making a new proposal of $31 per share. The letter recounts Microsoft’s prior
efforts to acquire Yahoo and noted that Microsoft had given Yahoo time to
implement business strategies designed to turn the company around. These
strategies obviously didn’t work. The letter went on to state: “Our proposal
represents a 62% premium above the closing price of Yahoo! common stock of
$19.18 on January 31, 2008.” Yahoo not only turned down this proposal but
sabotaged it. An article in CNET News cited in the complaint sums it up by
stating, “Yahoo may indeed agree to Microsoft’s [offer], but it will be over
Jerry Yang’s dead body”.
I and many of your shareholders believe that the only way to salvage Yahoo
in the long if not short run is to merge with Microsoft. However, because of HSR
considerations, to complete a merger of this magnitude will take a period of
time. Even if by some stretch of the imagination the Yahoo board finally
determines to do the rational thing and sell the company, I fear that, in light
of Yang and the board’s recent actions in response to Microsoft’s overtures, it
may be too late to convince Microsoft to trust Yang and the current board to run
the company during that period while Microsoft sits on the sidelines with $45
billion at risk. Therefore, the best chance to bring Microsoft and Yahoo
together is to replace Yang and the current Yahoo board with a board that will
negotiate in good faith with Microsoft and in whom Microsoft will have trust to
operate the company during the long period between signing and closing.
You stated in a press release yesterday that, “Yahoo’s board of directors
including Jerry Yang has been crystal clear that it would consider any proposal
by Microsoft that was in the best interests of its shareholders.” However this
is not crystal clear to me. You have allegedly turned down a $40 offer. You have
turned down and sabotaged a $33 offer. Instead, you appear willing to negotiate
an “alternative” deal that in my opinion will be worth less than $33 but will
entrench the board and Jerry Yang. I understand how these actions are in the
best interests of management and a board whose members each receive $40,000 per
month for several days work, but it is hard for me to understand how these
actions are in the “best interests of the shareholders.”
However, despite your actions to date, there is still some possibility that
you can resuscitate a Microsoft offer for the company. The board can rescind the
“severance plan” that is the largest impediment to a Microsoft deal. You
currently can do this because Microsoft withdrew their bid 30 days ago. It is
time for you to stop misleading your shareholders with respect to Microsoft. It
has been reported today that when asked to talk about the Microsoft bid, Sue
Decker indicated that Microsoft made an offer which Yahoo’s board didn’t feel
was at an attractive enough price. However, one doesn’t have to be a rocket
scientist to realise there is a simple method to possibly achieve a higher
price. Simply rescind the poison pill “severance plan”, which would free up
approximately $2.4 billion and possibly even more which could be added to the
bid. It is also time to admit to your shareholders that the severance plan was
not done for your employees (who you conveniently neglected to inform that
Microsoft had earmarked $1.5 billion in retention incentives for), but rather
was done simply as an entrenchment device and to impede a Microsoft bid. If you
are not completely disingenuous in your protestations concerning doing “the
right thing” for shareholders, you should rescind the severance plan
expeditiously and determine if Microsoft is still willing to purchase our
company and thereby create a true competitor for Google. I can only hope that
you will finally do what is in the “best interests of the shareholders.”
CARL C. ICAHN
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