San Francisco - Billionaire investor Carl Icahn on Thursday officially launched a proxy fight to oust the Yahoo board in a bid to revive Microsoft's spurned deal for the internet powerhouse. "It is quite obvious that Microsoft's bid of 33 dollars per share is a superior alternative to Yahoo's prospects on a standalone basis," wrote Icahn in a letter to Yahoo Chairman Roy Bostock. "I believe that a combination between Microsoft and Yahoo is by far the most sensible path for both companies and more importantly would be a force strong enough to compete with Google on the internet."
Icahn nominated a strong slate of alternative board members, who will try to replace the incumbent directors at the company's annual general meeting on July 3. If successful the shareholder revolt could oust Yahoo chief executive Jerry Yang from the company he founded as a graduate student in 1994.
Apart from himself, Icahn's slate of alternative directors include Mark Cuban, who sold his online video company Broadcom to Yahoo for 8 billion dollars; Frank Biondi, former chief executive of entertainment conglomerate Viacom; and New Line cinema chief executive Robert Shaye.
Icahn revealed he has bought 1.3 billion dollars of Yahoo's shares since the stock dived following the withdrawal of Microsoft's bid on May 3, and said he could seek to buy as much as 2.5 billion dollars of shares. But Icahn held out the offer of a compromise, saying that the Yahoo board could quell the mutiny be reopening negotiations with Microsoft.
"The board of directors of Yahoo has acted irrationally and lost the faith of shareholders and Microsoft," Icahn, 72, said in the letter. "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."
The move helped drive Yahoo shares higher Thursday as investors bet that it would increase the likelihood of an acquisition. But Microsoft has already indicated that it has removed Yahoo from its sights, and Icahn has not received any encouragement from the software giant, The New York Times reported.
Microsoft had targeted Yahoo as a way to better challenge the online dominance of Google. But Yahoo chief executive Yang said the company's offer undervalued Yahoo, which was set to experience strong growth due to a revamped advertising system.
Yang said Yahoo would only agree to a sale at 37 dollars a share, a price that Yahoo has not seen for at least two years - and which succeeded in driving Microsoft off.
"It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72 per cent premium over Yahoo's closing price of 19.18 dollars on the day before the initial Microsoft offer."
The result, he said, was that "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."
Investment experts said Thursday that Icahn will face a tough task gathering enough support among shareholders for his rebel bid, especially since Yang and co-founder David Filo own 10 per cent of the company. But Icahn is a legendary corporate raider who in just the last year has succeeded in shaking up companies such as Blockbuster, Time Warner, Motorola and BEA Systems.
Icahn's threats could be enough to help Yahoo executives return to Microsoft, which according to some analysts remains profoundly interested in striking a deal.
"We think Microsoft may still be interested [in Yahoo] as, in our view, it needs Yahoo to compete vs Google," wrote UBS analyst Ben Schachter in a research note Thursday. "We continue to think a deal will be reached."
