Activist Investor: Take Yahoo! Option No. 3

The timing was impeccable when I opened my mail Friday and found Yahoo!'s(YHOO - Cramer's Take - Stockpickr) proxy statement with a cover note that started: "The vote you will cast for directors at Yahoo!'s August 1, 2008 annual meeting is the most important for stockholders in our history." I couldn't agree more.

Carl Icahn is seeking to oust the entire Yahoo! board at that meeting. There's been a barrage of letters and counter-letters between Icahn and Yahoo! Chair Roy Bostock in the last few weeks, and Yahoo! shareholders have been faced with a binary choice for their vote at the upcoming election. I want to outline and advocate for a third option.

To this point, Icahn has made the case that the current board bungled the negotiations with Microsoft(MSFT - Cramer's Take - Stockpickr), leaving a breathtaking amount of shareholder value on the table. They also approved an employment retention and severance package in February that was effectively a poison-pill, as it could tack on $2.6 billion to the price any acquirer would pay to buy company.

Icahn argues this package was put in place to deter Microsoft and keep Yahoo! independent. Two reasons why Yahoo! might want to do this is (1) an emotional attachment the co-founders have for their company, and (2) the lavish senior executive and director compensation that has been paid out over the past few years. (The nonexecutive Yahoo! directors, on average, pay themselves twice as much as the nonexecutive Google directors -- $500,000 a year vs. $250,000, according to the most recent proxies from both companies.)