Yahoo Shareholder Meeting Anti-Climactic

Published: August 6, 2008

by Alex Woodie

As expected, Yahoo's shareholders overwhelmingly voted to keep the current board of directors in place, thereby approving the board's deal to give three seats to Carl Icahn, who has backed off his initial push for an acquisition by Microsoft. There was little mention of the failed Microsoft deal at the meeting, although Icahn apparently still has hopes that the two companies can work out some sort of deal in the future.

It was an anticlimactic end to a tumultuous seven-month process that would see whether Yahoo would sell all or part of itself to Microsoft. Since Microsoft made its unsolicited $44.6 billion bid for Yahoo on January 31, the two sides have been engaged in a high-stakes battle over the company's coveted online properties, which had the potential to help Microsoft mount a credible attack against Google in Web search and online advertising, or solidify Google's already dominant position in those fast-growing markets.

Just weeks before the August 1 meeting, Icahn was organizing a proxy battle to overthrow Yahoo's existing board of directors, who opposed doing a deal with Microsoft. The activist investor had spent some of his billions buying Yahoo shares in hopes of forcing a deal with Microsoft, and the proxy was his weapon of choice for corporate warfare.

In late July, however, Icahn accepted a peace offer from Yahoo, which saw him gain a spot on Yahoo's board and control over two other seats in exchange for dropping his proxy campaign. Yahoo also expanded the board from nine to 11 members to accommodate the two new directors, which Yahoo's board will pick from a slate of candidates submitted by Icahn.

With Icahn firmly on Yahoo's side, the fireworks show expected for the annual shareholder meeting--which Yahoo had pushed back months after Microsoft threatened its own proxy battle--instead turned into just another scripted event, where nothing unexpected happens. Each of the directors on Yahoo's ticket was re-elected with at least 77 percent of the vote. Chairman Roy Bostock received 79 percent of the votes for his seat, while CEO and co-founder Jerry Yang got 85 percent, a solid affirmation by Yahoo shareholders of the job he has done.

Bostock fielded some questions from shareholders about the Microsoft deal, and defended the board's actions. "There was never a compelling offer put on the table," Bostock said.

There were several offers on the table, at various times. Microsoft upped its initial offer of $31 per share to $33 per share in late April meetings, but Yahoo declined that offer, saying the company was worth $37 per share. After Microsoft announced it wasno longer interested in buying Yahoo, the Internet company's share price plummeted nearly to January levels, before Microsoft made its surprise bid. Yahoo's rejection angered shareholders, who argued that Yahoo was hurting the value of the company by not solidifying a deal with Microsoft, and instead entering into an advertising pact with Google.

After Icahn got involved in mid May, Microsoft indicated it might be willing to do a deal with Yahoo, but for its search business and not the whole company. Yahoo was not receptive to such a deal in the least, and resented Icahn's meddling in the company's affairs.

Nevertheless, the pesky Icahn succeeded in bringing principles of Microsoft and Yahoo back to the bargaining table. In early July, Ballmer and Yang met, but any sort of deal was doomed from the get-go. The two companies entered into a press-release contest, getting into a he said-he said argument over the terms and timelines laid out by Microsoft.

Incredibly, at one point in July Yahoo said it was willing to be bought by Microsoft for its revised $33 per share offer, but that Microsoft was no longer interested in the deal. On Friday, however, Bostock says Yahoo never received a formal written offer of $33 per share, and that $31 per share was the only formal written offer.

That elicited a response from Microsoft, which said in a statement: "Yahoo is attempting to rewrite history yet again with statements that are not supported by the facts."

While Icahn was not at the meeting, there was one dissident Yahoo shareholder, Eric Jackson, voicing displeasure.

Jackson, who represents a firm holding 3.2 million Yahoo shares, questioned the vote count, and asked Bostock if he would "do the honorable thing" and step down. "I'm frustrated and it's not just about Microsoft," Jackson said at the meeting. "We've been asking for a plan for the past four years, but there's no indication the company can execute. I don't think [Yang] is the right CEO. They need an outsider and new people around the table."

Yahoo will name two new board members from Icahn's list next Friday. The list will apparently not include Jonathan Miller, the former CEO and chairman of AOL, who has a non-compete clause with Time Warner, the parent company of AOL.

While Icahn is not actively pushing for a takeover by Microsoft anymore, the activist investor holds out hope that a deal can be done with Microsoft in the months to come, perhaps for Yahoo's search business.

"While I continue to believe that the sale of the whole company or the sale of its search business in the right transaction must be given full consideration, I share the view that Yahoo's valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders," Icahn said in Yahoo's July 21 press release announcing the settlement.

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