Icahn Fires off Scathing Letter to Yahoo Directors

Carl Icahn has put in writing the wrath he expressed to a newspaper Tuesday regarding unsealed court documents that allege Yahoo leaders failed to protect shareholders' best interests by actively trying to sabotage Microsoft's acquisition bid.

In a letter sent Wednesday to Yahoo Chairman Roy Bostock, Icahn blasted the board and co-founder and CEO Jerry Yang over their alleged maneuvers to scare away Microsoft from pursuing its unsolicited acquisition bid, as recounted in court documents unsealed Monday.

"I have constantly complained about how far CEOs and boards will go in order to retain their jobs, yet even I am amazed at the length Jerry Yang and the Yahoo board have gone to in order to entrench their positions and keep shareholders from deciding if they wished to sell to Microsoft," Icahn wrote.

Yahoo didn't immediately reply to a request for comment.

As he told The Wall Street Journal on Tuesday, Icahn reiterated in his letter his belief that Microsoft will not return to the negotiating table unless the current board and Yang have left Yahoo.

"Therefore, the best chance to bring Microsoft and Yahoo together is to replace Yang and the current Yahoo board with a board that will negotiate in good faith with Microsoft and in whom Microsoft will have trust to operate the company during the long period between signing and closing," Icahn wrote.

Icahn, who has nominated a slate of candidates to replace Yahoo's board at the company's shareholders meeting in August, recounted in his letter some of the most juicy allegations in the complaint.

For example, Icahn said he was horrified by Yahoo's adoption of an extremely costly severance plan for all Yahoo employees that would grant them generous benefits for resigning if the company is acquired and that could have cost Microsoft more than US$2 billion on top of the acquisition price.

"Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies. I never believed that anyone would actually create and activate one in real life. I guess I never knew about Yang and the Yahoo Board," he wrote.

Yahoo's board should throw out this severance plan immediately because it is clearly nothing more than a "poison pill" technique, Icahn wrote. "It is insulting to shareholders that Yahoo for the last month has told us that they are quite willing to negotiate a sale of the company to Microsoft and cannot understand why Microsoft has walked away. However, the board conveniently neglected to inform shareholders about the magnitude of the plan it installed which made it practically impossible for Microsoft to stay at the bargaining table."

What prompted Icahn to fire off his latest angry letter to Bostock was the class-action lawsuit filed in Delaware Chancery Court in February on behalf of shareholders the Police & Fire Retirement System and General Retirement System of Detroit.

Although the complaint had been available with parts redacted, Judge William Chandler ruled on Monday that the court shouldn't keep documents such as that one under seal, despite Yahoo's arguments to the contrary.

In its unredacted version, the 64-page complaint is full of blistering allegations, copies of internal Yahoo documents and e-mails and blow-by-blow accounts of what plaintiffs characterize as Yahoo bad-faith maneuvers toward Microsoft.

Yahoo said Tuesday that the judge's decision is disappointing, but that the issue is a routine legal matter and that the case is without merit.

Microsoft announced its unsolicited offer to buy Yahoo on Feb. 1 -- a $44.6 billion cash-and-stock deal that offered shareholders a 62 percent premium over Yahoo's stock price the day before. Yahoo's board rejected that offer, saying it undervalued the company, and Microsoft later increased it to $47.5 billion, but Microsoft eventually walked away from the negotiations on May 3 after the two sides failed to agree on a price.

After Microsoft withdrew its offer, several large Yahoo institutional investors publicly criticized Yang and the board for, in their view, not negotiating in good faith and failing to look out for shareholders' best interests.

Yang and other Yahoo executives responded by saying that they were open to negotiating further but that Microsoft unexpectedly walked away without ever putting its last offer in writing.

Then Icahn got into the picture, acquiring a significant amount of Yahoo stock and readying his proxy fight in order to re-ignite merger negotiations.

However, Microsoft officials have indicated that the company isn't interested in buying all of Yahoo anymore.

Microsoft did acknowledge on May 18 that it has approached Yahoo with a proposal to enter into a more limited partnership or deal, which many observers believe likely involves Yahoo's search advertising business.

On Wednesday, Yahoo President Susan Decker said at an event that those negotiations with Microsoft are ongoing.

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