REDMOND – A joint offer over the weekend by Microsoft Corp. and investor Carl Icahn to break up Yahoo, which was rejected by Yahoo, now ushers in instead a much hotter proxy battle for control of the embattled search engine.
The proposal, made Friday night, envisioned that Microsoft would buy Yahoo’s search business and let Icahn and his slate of directors control the rest of the company. The deal was conditioned on the removal of Yahoo Chief Executive Jerry Yang and its board, The Wall Street Journal reported.
In a statement, Yahoo Chairman Roy Bostock characterized the proposal as “ludicrous” and the product of an “odd and opportunistic alliance” between Icahn and Microsoft that undervalued Yahoo’s assets and would tear the company apart. “We will not be bludgeoned into a transaction that is not in the best interests of our stockholders,” he said.
In rejecting the plan, Yahoo said it repeated its own offer to sell the entire company to Microsoft for at least $33 per share, and also offered to negotiate an improved transaction involving only Yahoo’s search business. Microsoft rejected both offers, Yahoo said.
But Icahn blamed Yahoo’s insistence that its current directors and Mr. Yang remain in place for the failure to reach a deal. “They kept talking about corporate governance,” Icahn said, contending that Yahoo’s board “is willing to watch the ship go down rather than sell the company.” He added: “I delivered everything they wanted but at the end they still didn’t want to do a deal.”
The moves bring the three players to an apparent impasse before the company’s Aug. 1 annual meeting, where Mr. Icahn is seeking to replace the Yahoo board with his own nominees. The investor entered the fray after Microsoft in May withdrew its unsolicited bid for Yahoo of $33 per share, a deal which was then valued at about $47.5 billion.
.
Icahn, who has sometimes played the role of intermediary between potential merger partners, demonstrated that he could bring Microsoft back to the table. He helped spur a series of phone calls between himself, Bostock and Microsoft Chief Executive Steve Ballmer on Thursday, Friday and Saturday.
But since the talks failed to end in a deal, Icahn will likely turn his attention back to the proxy fight, including possibly detailing a new management team. Yahoo meanwhile is again faced with explaining to increasingly impatient shareholders why it rejected another offer from Microsoft — particularly one which it acknowledged carried improved financial benefits.
According to people familiar with the situation, Icahn spoke with Bostock and Yahoo’s bankers on Thursday to deliver Microsoft’s latest proposal. The offer envisioned that Yahoo would hand over its search business to Microsoft in exchange for $1 billion plus a guaranteed annual payment to Yahoo of $2.3 billion for five years. An earlier Microsoft search deal offer only included guarantees for three years. The new deal would carry a minimum annual payment of $1.6 billion for the subsequent five years, these people said.
Among other provisions, according to a person familiar with the situation, Microsoft would buy $3.9 billion of Yahoo shares, as well as purchase $2.8 billion in Yahoo’s debt, the proceeds of which Yahoo would use for a special dividend to shareholders. Yahoo would be left with its Internet-content business.
By Icahn’s calculation, the value of the transaction with Microsoft and the remainder of the company would be worth close to $33 per share to Yahoo shareholders. And Yahoo would receive continued revenue from its search business without having to spend hundreds of million of dollars a year on it, the people close to Icahn said.
On Thursday evening, Bostock called Ballmer directly to start talks with Microsoft, according to people close to both Yahoo and Microsoft. Ballmer told Bostock that he didn’t want to negotiate directly with Yahoo since he felt Yahoo and Microsoft had been just spinning in circles.
Later that evening, Microsoft’s general counsel, Brad Smith, told Ron Olson, the lawyer for Yahoo’s independent directors, that Microsoft was willing to talk to Yahoo directly, but wanted to wait until after the market closed on Friday, according to people close to Yahoo.
On Friday, Microsoft and Icahn laid out their proposal in a series of phone calls between Bostock, Icahn, Ballmer and their advisers. Icahn delivered the message that Yang would have to be replaced and that Icahn wanted control of the board, according to people close to Icahn and Yahoo.
As the conversations continued, Bostock continued to press Icahn and Ballmer on their terms for how the remaining company would be governed and the composition of the board, according to people close to Icahn and Yahoo. Ballmer grew frustrated that the parties were spending a long time talking about corporate governance, according to a person close to Icahn.
Yahoo complained that it was given less than 24 hours to review the new proposal and asked for more time. People familiar with Microsoft’s thinking dispute the notion of a deadline, but said Microsoft hoped to complete a deal over the weekend so it could be announced Monday.
A person close to Icahn said any deadline was linked to the upcoming Yahoo shareholders’ meeting. Microsoft and Icahn would have been happy to give Yahoo more time if it was willing to accept the basic premise of the deal and push back the meeting, this person said.
Yahoo took the proposal to its board Saturday morning. After a five-hour discussion, the board decided to reject the proposal. While the company acknowledged that some details were improved, the board still felt the offer was inadequate and didn’t fully value the business.
The board was also concerned that it would be impossible to execute and that it couldn’t negotiate the best deal under time pressure and with no prospects of controlling the company, according to people close to Yahoo. Lastly, the board believed that it could choose to follow some aspects of the proposal — such as divesting its Asian businesses — independently.
Bostock called Ballmer and Icahn to relay the decision midday Saturday. Bostock again stressed that Yahoo would be open to a full acquisition at $33 a share and in revisiting the search deal after the proxy fight, according to people close to Yahoo.
The breakdown may halt talks between Icahn and Yahoo about a possible settlement prior to the shareholders meeting. Icahn had suggested at one time that he would be willing to back away from his campaign in exchange for four seats on Yahoo’s board, according to people familiar with the talks. While Yahoo had been unwilling to agree to those terms, the two sides had continued to talk in the past week.
a>>
