Icahn Targets Yahoo! Board of Directors

Pia Sarkar

05/15/08 - 05:42 PM EDT
Updated from 3:44 p.m. EDT

Carl Icahn is treading over familiar ground, formally launching a proxy fight in a move to replace 10 seats on Yahoo!'s (YHOO Quote - Cramer on YHOO - Stock Picks) board of directors.

In a letter to Yahoo!'s Chairman Roy Bostock Thursday, Icahn said the Internet search giant "acted irrationally" and has lost the faith of shareholders and Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks), which tried to acquire the company at a price of $33 a share, an offer that Yahoo!'s management said was too low.

Icahn said that many investors have expressed dissatisfaction with Yahoo! for failing to reach a merger agreement with Microsoft, pushing him to lead a proxy battle against the company's board. Microsoft has given no indication that it would be interested in reviving talks with Yahoo!, as many shareholders have been hoping. Still, a vote to oust the Internet giant's current board could at least get the conversation going again.

"It is quite obvious that Microsoft's bid of $33 per share is a superior alternative to Yahoo's prospects on a standalone basis," Icahn wrote to Bostock. "I am perplexed by the board's actions. It is irresponsible to hide behind management's more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo's closing price of $19.18 on the day before the initial Microsoft offer."

Icahn managed to barely squeak by Yahoo!'s deadline to nominate candidates for the board. Yahoo! set the date for the end of the day on Thursday, a tight turnaround for anyone trying to push through his or her own slate. All eyes will now turn to Yahoo!'s annual shareholder meeting, set for July 3.

Since Microsoft withdrew its offer for Yahoo! at the beginning of the month, Icahn has acquired roughly 59 million Yahoo! shares for more than $1.5 billion. According to The Wall Street Journal, Icahn is seeking antitrust clearance from the Federal Trade Commission to acquire another $1 billion worth of Yahoo! stock. Microsoft believed a merger would better position the company to take on search titan Google (GOOG Quote - Cramer on GOOG - Stock Picks).

Icahn's 10 nominees include himself, Icahn Enterprises' Keith Meister, Dallas Mavericks owner Mark Cuban, former Viacom (VIA.B Quote - Cramer on VIA.B - Stock Picks) CEO Frank Biondi Jr., Adam Dell, Lucian Bebcuk, John Chapple, Edward Meyer, Brian Posner and Robert Shaye.

Recently, Icahn reached an agreement with Motorola (MOT Quote - Cramer on MOT - Stock Picks) to put Meister on the troubled handset maker's board of directors.

Shares of Yahoo! rose 61 cents, or 2.3%, to $27.75, bringing them close to the levels they were trading at before Microsoft withdrew its $47.5 billion offer. The stock is up more than 10% over the last week.

Icahn is known for swooping in and buying up shares of struggling companies in order to influence the way they operate. In addition to his battle with Motorola's board, he recently bought a stake in BEA Systems and then pushed for a takeover by Oracle(ORCL Quote - Cramer on ORCL - Stock Picks).

Staff reporter Robert Holmes contributed to this article.