Yahoo’s (YHOO) board responded to Carl Icahn, who is circling Yahoo like a hungry shark. Earlier, Icahn unveiled his slate of directors, including himself, Frank Biondi, and Mark Cuban. In a letter to Icahn, Yahoo Chairman Roy Bostock says he thinks the board is doing its job just fine — and, more importantly, he explains why.
In fact, Icahn’s attack has given Yahoo the best forum it has had to date in which to tell its story of the Microsoft negotiations — a story that it botched in the press the first time around. (In the days after the deal fell apart, Yahoo sounded wimpy, whiny, and clueless. In this letter, the company sounds diligent and reasonable.)
Most importantly, Yahoo’s letter will likely do what it is intended to do: Put the onus on Icahn to get a Microsoft offer back on the table. Bostock reiterates the company’s willingness to sell for $37 and notes that “there is currently no acquisition offer on the table from [Microsoft] or any other party.”
What will happen next? Icahn will probably try to get Microsoft to agree to pay $33 if he can deliver Yahoo in a gift-wrapped box. Importantly, however, we don’t think getting this agreement will be a given: We think that, for a variety of reasons, Steve Ballmer eventually decided that buying Yahoo was a mistake. (And we think he’s right).
If Icahn is able to get the Microsoft nod, however, he will circle the wagons with other Yahoo shareholders. Then he’ll turn up the heat on Jerry Yang and the board by waving the proxy stick and leaking the $33 publicly.
Annotated letter below..
SUNNYVALE, Calif.– May 15, 2008–
Yahoo! Inc., a leading global Internet company, today sent the following letter in response to Carl Icahn’s announcement regarding his intention to nominate a slate of 10 directors to Yahoo!’s board of directors at the 2008 annual meeting of stockholders.
Dear Mr. Icahn:
We are in receipt of your letter with regard to your intention to seek control of Yahoo!’s board of directors.
Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal. A fair-minded review of the factual record leads to one conclusion: that Yahoo!’s 10-member board, comprised of nine independent directors along with Yahoo! CEO Jerry Yang, remains the best and most qualified group to maximise value for all Yahoo! stockholders.
Conversely, we do not believe it is in the best interests of Yahoo! stockholders to allow you and your hand-picked nominees to take control of Yahoo! for the express purpose of trying to force a sale of Yahoo! to a formerly interested buyer who has publicly stated that they have moved on. Please may I remind you that there is currently no acquisition offer on the table from that company or any other party. 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.
From the beginning of the process with Microsoft, Yahoo!’s independent directors focused on one central goal: how best to maximise stockholder value. At all times directing this process, Yahoo!’s independent directors carefully considered Microsoft’s initial unsolicited proposal, which was at the time valued at $31 per share. 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. While we rejected this offer publicly on February 11, 2008, we could not have been more clear in that communication and in every subsequent communication, both public and private, that we were and are willing to enter into any transaction that would maximise value for stockholders and provide them certainty of value.
The record of our efforts to engage Microsoft in meaningful discussions is unequivocal. Following receipt of Microsoft’s proposal on January 31, our board of directors has met over 20 times to review Microsoft’s proposal and Yahoo!’s other strategic alternatives. Throughout this process our board kept an open mind and an open ear. Our independent directors met with several of our largest stockholders to solicit their views and to make it clear that Yahoo!’s independent board is fully committed to maximizing stockholder value. In addition, at the direction of our board, our management team met with many of our investors to provide insight into Yahoo!’s strategy and views on value.
Our board’s openness also extended to Microsoft. Without reciting all of the contacts between us and between our advisers, the senior-most management of Yahoo! and Microsoft and the companies’ respective financial advisers spoke on numerous occasions and met in person seven times. During those meetings, Yahoo! discussed its strategic objectives in search and display advertising monetization, its perspectives on operating strategy and integration in a transaction with Microsoft, its perspectives on transaction synergies, and other non-price deal terms. Because certainty of closing is a critical issue, we sought to understand Microsoft’s thinking with regard to the regulatory issues associated with a potential transaction. In fact, at the board’s direction, our lawyers on March 28 asked for additional information in this regard, information which was never forthcoming.
On April 15th, a meeting was held at Yahoo!’s request. At that meeting, which included our respective financial advisors, we made clear, once again, that we were open to a transaction with Microsoft. During those discussions, Yahoo! made a detailed presentation of its strategic and financial plan, its thoughts on integration and its view with respect to the potential synergies that could be achieved in a transaction, essentially laying the foundation for Microsoft to understand–and respond to–our board’s conclusion that Microsoft’s offer substantially undervalued the company. Following that meeting we also provided to Microsoft a list of key non-price deal terms that our board believed were critical items to be addressed in a deal to provide reasonable protections for our stockholders.
Throughout this period, Microsoft continued to state that it would not raise its offer, and even suggested that it could lower it.
Despite this failure by Microsoft to respond in any substantive way to any of Yahoo!’s requests, on May 2nd, the same day we first learned of Microsoft’s apparent willingness to increase its proposal to $33 (although this oral “offer” was never delivered in writing and did not include details of a cash/stock mix), [THIS IS A KEY DETAIL. AND IN THIS LETTER, UNLIKE THE PUBLIC STATEMENTS AFTER THE DEAL BLEW UP, YAHOO IS INTRODUCING IT EFFECTIVELY] our board determined to continue discussions, instructing Jerry Yang to indicate to Microsoft that we would be prepared to enter into a transaction that valued Yahoo! at $37 per share and that provided reasonable certainty of value and certainty of closing. This was communicated to Microsoft in-person at a meeting in Seattle on May 3rd. With Microsoft’s offer at $33 and Yahoo!’s counter-proposal at $37, Microsoft elected, within hours, to walk away from the negotiating table and informed us that they were “moving on,” having never engaged further on price or any of the key non-price deal terms.
In short, Yahoo!’s board was at every point in this process prepared to enter into a transaction with Microsoft that would maximise stockholder value–and included certainty of value and closing. What Yahoo!’s independent board refused to do was to allow control of this company to be acquired for less than its full value.
That brings us to today. Our business is performing well as evidenced by our first quarter results. As we have publicly stated, our board continues to actively and expeditiously explore strategic alternatives to maximise stockholder value. None of the alternatives we are considering would preclude us from entering into a transaction with Microsoft or any other party.
We continue to believe that Yahoo!’s current board has the independence, the knowledge, and the commitment to navigate the Company through the rapidly changing Internet environment and to deliver value for Yahoo! and its stockholders.
We look forward to a productive dialogue.
Very truly yours,
Chairman of the Board
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