Yahoo Says Icahn Is Whack

Yahoo Chairman Roy Bostock fires back at Carl Icahn, telling the investor he doesn't get the Microhoo process.

Yahoo shot back at Carl Icahn, telling the billionaire investor he doesn't understand the facts about Microsoft's last $33-per-share offer for the Internet company and the way Yahoo considered it.

Yahoo Board Chairman Roy Bostock responded to a letter from Icahn May 15, the same day the investor threatened to launch a proxy fight for the company if Yahoo and Microsoft did not come to terms on a deal. Icahn said in his letter that Yahoo's board acted irrationally and lost the faith of shareholders in rejecting Microsoft's bid.

He also noted that he picked a slate of 10 replacement board members to install at the July 3 shareholders' meeting to help fight for Microsoft, which walked away from the bargaining table May 3 and has seemed, to all outward appearances, disinclined to reconsider a deal.

On the basis of Microsoft's apparent disinterest, Bostock vowed to fight for the company.

"We do not believe it is in the best interests of Yahoo! stockholders to allow you and your hand-picked nominees to take control of Yahoo! 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," Bostock wrote.

No Deal Despite 20+ Meetings

Bostock said that there is currently no purchase offer from any company, and that Yahoo would be willing to consider any fair proposal, which would likely start at the $37 per share Yahoo asked Microsoft for.

The chairman went on to make a dizzying recount of the steps Yahoo's and Microsoft's board of directors took to discuss a deal. This included more than 20 meetings of Yahoo's board since February, when Microsoft made its initial $31-per-share offer, and seven meetings with Microsoft's board.

"In short, Yahoo's board was at every point in this process prepared to enter into a transaction with Microsoft that would maximize stockholder value-and included certainty of value and closing," Bostock said. "What Yahoo's independent board refused to do was to allow control of this company to be acquired for less than its full value."

Bostock noted that this leads to one conclusion: that Yahoo's current board remains the best group to move the company forward.

He also reiterated another now-famous Yahoo mantra-that the board continues to explore strategic alternatives to maximize stockholder value-but noted that none of the alternatives, which include a plan to outsource paid search terms to Google, would preclude Yahoo from entering into a transaction with Microsoft.

Playing into Icahn's Hands

Still, Yahoo is in a precarious position with Icahn breathing down its neck. If Icahn applies enough pressure and has the backing of Yahoo's biggest institutional shareholders, Yahoo may want to go back to Microsoft to make a deal, or tempt Microsoft to go to Yahoo. Either way, it would be playing into Icahn's hands.

See, Icahn snapped up 59 million shares at around $25 earlier this week. If he manages to bring Microsoft back to the table, and the partners agree on Microsoft's last bid of $33 per share, he will make about $470 million.

Market research company IDC said Microsoft still wants and needs Yahoo to make any inroads in the online space.

"By appearing disinterested, Microsoft can take advantage of the high-risk tactics of Carl Icahn and the desperation that comes with the passage of time to acquire Yahoo for possibly a little less than $33 per share ($33 was never put in writing)," wrote IDC's Caroline Dangson in a May 15 note.