Icahn Making A Play

The rumors are true. Carl Icahn will be making a play for the Yahoo! board. In hindsight, this makes sense. Icahn loves situations where both the current retail investors and big shareholders are dissatisfied. It does not hurt if management is also not appearing to listen to shareholders. Having options, such as buyers or potential merger partners, also helps. In this case, Icahn has all three.

Of interests in the recent news is how Icahn is planning to nominate a full slate of directors, up to 12 in total (Update: Looks like it will be 10). At first blush this looks risky, and potentially less successful, but is also probably a wise and typical Icahn move. If the board is approved, then Icahn can essentially do what he wants with the company, including removing Yang and selling the company to the highest bidder. On the other hand, if the move fails, because shareholders were not that dissatisfied as originally expected, then Icahn can walk away, and hopefully sell shares at or slightly above what he paid for them, letting Yahoo fix its own problems.

Of course, trying to nominate a full board could simply be a strategy to get some, but not necessarily all of the board after a series of negotiations with the current board and management. Nonetheless, he probably needs at least half to influence a board that is seemingly in the pocket of its management, and who at this point appears unwilling to negotiate and accept a reasonable price for their company.

What also may be more important is not the shareholder vote and number of board seats, but whether Icahn can convince Microsoft to come back to the bargaining table. If he can accomplish this, I suspect the large shareholders he needs, along with enough retail support, will fall into line and make the proxy contest successful. But getting Microsoft on board will be tricky. While still probably wanting Yahoo!, Microsoft has publicly stated their intention to move on, and Ballmer is not know for wavering. Furthermore, Microsoft has to think about whether they want a vocal activist in their corner, and whether they want this same activist to eventually own a small, but significant portion of their stock after the sale - assuming cashing out is not part of the deal.