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Yahoo: Icahn misunderstood Microsoft offer

Investor criticised for trying to push deal through

Yahoo has criticised the investor who tried to take control of Yahoo's board in a bid to force the web company back into negotiations with Microsoft.

Yahoo described investor Carl Icahn as having "a significant misunderstanding" of how it handled Microsoft's offer and argued that Yahoo's current board remains "the best and most qualified group" to handle its affairs.

In a letter to Yahoo, which was made public yesterday, Icahn said he planned to nominate 10 candidates to replace the incumbent directors on Yahoo's board. He argued that Yahoo was wrong to reject Microsoft's offer to buy the company for $33 (£16.50) per share, and said he hopes to install a new board at Yahoo's shareholder meeting in July that will resume the merger talks.

In a written response to Icahn, Yahoo board Chairman Roy Bostock said:

"Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal," the company wrote.

"A fair-minded review of the factual record leads to one conclusion: that Yahoo's ten-member board, comprised of nine independent directors along with Yahoo CEO Jerry Yang, remains the best and most qualified group to maximise value for all Yahoo stockholders."

Bostock's response also describes the negotiations with Microsoft in detail, in a bid to show that Yahoo took the offer seriously. It highlights it would not be in the best interests of Yahoo's shareholders for Icahn to nominate a slate of directors "for the express purpose of trying to force a sale of Yahoo to a formerly interested buyer who has publicly stated that they have moved on.

"Please may I remind you that there is currently no acquisition offer on the table from that company or any other party," Bostock adds.

"That said, we have been crystal clear in our stance that we have been and remain willing to consider any proposal from any party including Microsoft if it offers our stockholders full and certain value."

Microsoft announced its $44.6 billion bid for Yahoo in February but it walked away from the deal on May 3 after the two companies failed to agree on a price. Microsoft eventually raised its offer to $33 (£16.50) per share, or by about $5bn, but Yahoo's board wanted $37 (£18.50) per share.

Icahn, a billionaire investor who last year pressured Motorola to spin off its mobile-phone division, has bought up 59 million Yahoo shares since Microsoft walked away from the deal and hopes to buy a further $2.5bn (£1.75bn) of Yahoo stock. He argued on Thursday that Microsoft's offer of $33 (£16.50) per share is "obviously" superior to Yahoo's prospects as a stand-alone company, and said "a number of shareholders" have asked him to launch the battle for Yahoo's board.

"I am perplexed by the board's actions," he said. "It is irresponsible to hide behind management's more than overly optimistic financial forecasts."

Yahoo stuck to its guns and insisted again that Microsoft's offer undervalues the company. It said its board has met more than 20 times to discuss Microsoft's offer and other alternatives. It said it solicited input from shareholders, and that "the senior-most management" from both companies met seven times in person to discuss the deal.

On May 2, Yahoo's board instructed Yang to tell Microsoft that Yahoo was prepared to be sold for $37 (£13.50) per share, provided that Microsoft could show it was reasonably certain it could close the deal without running into regulatory issues.

"This was communicated to Microsoft in-person at a meeting in Seattle on May 3rd. With Microsoft's offer at $33 and Yahoo's counter-proposal at $37, Microsoft elected, within hours, to walk away from the negotiating table and informed us that they were 'moving on,' having never engaged further on price or any of the key non-price deal terms."

Bostock concludes that Yahoo is open to a deal "with Microsoft or any other party" for the right price, and that its own board can best steer the company moving forward.


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