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Icahn Buys Yahoo Shares, Spurring Proxy War Rumors

The Wall Street Journal reported today that investor Carl Icahn purchased about 50 million shares of Yahoo (3.5 percent of total shares) following Microsoft's failed acquisition bid for the company, citing an unnamed source. If so, the action by the billionaire investor suggests he may be considering altering Yahoo's board with the idea of restarting Microsoft's acquisition negotiations.

The idea of a hostile takeover via a proxy war on Yahoo's board was threatened by Microsoft's CEO Steve Ballmer in an April 5 letter sent to Yahoo's board. However, Microsoft backed away from the deal when Yahoo's management said Microsoft's offer undervalued the company.

Nominations for Yahoo's board are due this Thursday, with a final vote scheduled for July 3 at the company's annual shareholders' meeting.

Many have speculated that Microsoft terminated its talks with Yahoo as part of an overall acquisition strategy. An analogous strategy, often noted, was Oracle's acquisition of BEA Systems. In that case, Oracle execs walked away from negotiations only to return later and purchase BEA when BEA's share values took a hit. Icahn was involved in pressuring BEA to sell in that deal, according to reports.

The WSJ article cited Yahoo's second largest shareholder, Bill Miller, portfolio manager of the Legg Mason investment fund, as favoring a restart of acquisition talks with Microsoft. However, Miller said that without Microsoft's involvement, the effort would just distract Yahoo and waste time.

Last week, various Microsoft execs publicly expressed, sometimes in conflicted ways, the idea that the unsolicited takeover bid for Yahoo is over. For instance, Craig Mundie, Microsoft's chief research and strategy officer, told Reuters journalists in an interview that "The market may wish that the Yahoo deal may come back together, but Microsoft at least at this point assumes it's over."

However, Mundie also added that Microsoft might reconsider if Yahoo revisited Microsoft's $33 stock offering -- a stumbling block in the deal. Yahoo execs reportedly wanted $37 per share of Microsoft common stock for the deal to close.

Yahoo's stock rose late Tuesday by five percent on the news that Icahn was considering a proxy battle, according to the WSJ's account.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.

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