Icahn Pushes Yahoo! Strategy - TheStreet

Icahn Pushes Yahoo! Strategy

The financier wants Microsoft back to the table.
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Updated since 11:24 AM EST

SAN FRANCISCO -- Continuing on his warpath, financier Carl Icahn sent another letter to

Yahoo!

(YHOO)

outlining his plans for the company in the event he successfully ousts its board, including a rejection of any alternative deal with

Microsoft

(MSFT) - Get Report

that is worth less than $33 a share.

Icahn has stepped up his letter-writing efforts as he tries to convince shareholders to vote for his dissident slate of candidates to replace Yahoo!'s board at the annual meeting on Aug. 1.

Still incensed by the tech giant's failure to reach a merger agreement with Microsoft, Icahn said he would ask the new board, if elected, to invite Microsoft back to the table to discuss a deal on friendly terms. He added that Yahoo! should sell to Microsoft for $34.375 per share -- a bump from Microsoft's last offer of $33.

"To the extent Microsoft does not want to make a proposal, I will ask our new board to do a deal on search with

Google

(GOOG) - Get Report

, but only if it contains termination provisions that would in no way impede a subsequent acquisition by Microsoft," Icahn said.

Yahoo! has already been talking with Google about outsourcing some of its online ads, although it is not clear how far those discussions have gotten. Microsoft has been opposed to any deal between the two companies, claiming that it would increase Google's domination on the Internet -- one big reason why the software giant pulled its $47.5 billion bid on May 3 for Yahoo!.

Icahn argues that another reason why Microsoft walked away is because of generous severance packages Yahoo! is offering employees if they leave their jobs, something which he thinks the company should rescind.

Yahoo!, which has been referring to the packages as an employee retention program, points out that the benefits would only apply if there is a change in control of the company and also if the employee is terminated "without cause" or resigns for "good reason." On Friday, it rejected Icahn's advice to rescind the program.

"We believe that Mr. Icahn's suggestion that we cancel our retention plan would have a destabilizing impact on Yahoo! and would clearly not be in the best interests of our shareholders," the company said in a brief response.

Yahoo! also criticized Icahn's suggestion that it publicly put out a purchase price to see if Microsoft will alter its stated position that it is no longer interested in a merger, calling it "ill-advised."

For his part, Icahn has been citing arguments put forth by a shareholder lawsuit that show severance expenses at Yahoo! totaling $2.4 billion if Microsoft puts in a bid of $35 a share for the company.

"You neglected to mention that the true cost to an acquirer may be even higher as the perverse change in control severance incentives may diminish the work effort of Yahoo! employees," Icahn wrote in his letter. "In case you do not understand the plan, in addition to the $2.4 billion of severance expenses, I believe the plan will negatively impact employee behavior and degrade the ability of an acquirer to successfully integrate the acquisition."

Icahn further questioned the logic behind an alternative deal with Microsoft, which Yahoo! has been discussing with the company since the merger talks collapsed.

"Why are you still giving hope to Microsoft that there is a possible 'alternative deal?'" he wrote. "As long as there is the possibility of an 'alternative deal,' isn't it obvious that Microsoft will not make a bid for the whole company?"

Shares of Yahoo! were down 0.3%, or 7 cents, to $26.29 in recent trading.