Can Icahn take on the Yahoo board and win?

May 15, 2008 (Computerworld) As billionaire investor Carl Icahn gears up for a proxy fight with Yahoo Inc. at its July 3 shareholders' meeting, the question is, can he win? And if he does win, will he be able to persuade Yahoo's jilted suitor, Microsoft Corp., to reconsider its acquisition bid?

Once a deal has soured, like Microsoft's bid to take over Yahoo, it's pretty hard to get the party that thinks it's been wronged back to the table, said Rob Enderle, an analyst at San Jose-based Enderle Group. However, a new board of directors might persuade Microsoft to restart the negotiations, he said.

Microsoft announced its $44.6 billion bid for Yahoo on Feb. 1, but walked away from the deal three months later, on May 3, saying the companies couldn't agree on a price. Microsoft's last offer was for $33 per share, or about $5 billion more than its original offer. Yahoo, however, wanted $37 per share.

"My initial thought when Microsoft walked away was the only way they'd come back is if Yahoo came to them," Enderle said. "Well, clearly this would be that case — where Icahn would replace the board and the board comes to Microsoft with an offer. It probably wouldn't be as good as Microsoft's last, best offer, but it might be."

Enderle said Yahoo's entire board is ripe for a shareholder takeover because its stock plummeted after Microsoft pulled out of the deal and the stock market doesn't seem to be coalescing around Yahoo's future strategy. He said the market appears to have lost confidence in Yahoo primarily because of the way it handled the Microsoft acquisition bid.

"And because Yahoo's performance numbers have never met the expectations that have been set for them, that provides an environment where a board can be replaced," Enderle said.

In addition, he said Icahn understands marketing and is very tenacious when he wants something. "He comes in with a plan, he's already identified the board members, and he promises an almost immediate return on investment, so that kind of thing can be hard to stop," Enderle said. "So I think the odds favor him to be successful at this point."

Enderle cautioned that although Yahoo isn't necessarily defenseless at this point, it will be much harder to hold off Icahn than it was to hold off Microsoft.

"Now this is an investor coming in, not Microsoft, and the whole 'Microsoft is evil' card won't play here," he said.

Enderle said Yahoo might have to bring in different candidates itself or at least showcase the capabilities of its current board members.