Icahn v. Yahoo, Round Kabillion
Some couples just never seem to tire of bickering. Their constant squabbles make small children look mature. Because I know you haven’t had enough of this drama lately, this is another one of those stories.
So, to get us all up to speed: prominent Yahoo shareholder Carl Icahn proposed a proxy board, probably to oust Jerry Yang and take a Microsoft deal. He says Yahoo’s employee severance plan (which would be triggered by a takeover or merger) is a poison pill. Yahoo says their severance plan is to protect and reassure employees and that Icahn has no credible plan for Yahoo. Simple enough, right?
In the latest round of fighting, we continue with the he-said, they-said over the employee severance plan. In letters to Yahoo, Carl Icahn has not only called the plan a poison pill but his actions have also gotten the shareholders who were already suing Yahoo to believe and file suit against the plan. Also, Icahn indicated that it was designed to prevent a merger with Microsoft with its $2.4 billion price tag—and that Yahoo’s own consultants called the plan “nuts.”
Mr. Icahn says this Plan costs $2.4 billion. Is that what it actually costs?
No. . . . Mr. Icahn quotes the $2.4 billion estimate, taken out of context, from a complaint filed in litigation against the company. This number is necessarily based on a number of assumptions, including the assumption that all of Yahoo!’s employees are terminated without Cause or leave for Good Reason following a Change in Control. . . .
Did Yahoo!’s compensation consultant say that the Plan is “nuts”?
No. . . . Timothy J. Sparks, the president of Compensia, Yahoo!’s compensation consultant firm, explained in a sworn deposition that he used the word “nuts” to describe his opinion of using the assumption that 100 percent of Yahoo!’s employees would actually receive the severance benefits under the Plan to determine cost estimates. Mr. Sparks made clear in his deposition that his remark did not relate to the design or cost of the Plan.
So although Icahn said that the compensation consultant called the plan “nuts,” what the man really said was that Carl Icahn’s interpretation of the plan was “nuts.” That’s turning your opponent’s argument against him.
Icahn insists that the plan be rescinded, but according to Yahoo, the plan cannot be changed within 30 days of any action toward “a Change in Control,” which is clearly what Icahn is angling for.
Best of all, though, is Henry Blodget’s insightful point: Icahn hates the employee severance plan because it would be triggered if his proxy bid succeeds. A “Change in Control” triggers the employee severance plan whether it’s Microsoft or Icahn taking over.
I also agree with his assessment of the situation:
- Carl Icahn has no real plan for Yahoo other than selling to Microsoft
- This weak negotiating position would likely lead to a takeout in the high-$20s, if that.
So much for that $34.375/share price tag. It does seem painfully obvious that this kind of fighting and obvious display of weakness can only harm Yahoo’s bargaining position, no matter who ultimately gains control of the board.
The bottom line? Yahoo’s once again stuck in an untenable position. Do you see a way out for them?