Two weeks after Microsoft Corp abandoned its pursuit of Yahoo Inc, a proxy fight launched by activist investor Carl Icahn has put Microsoft in the driver's seat.
Icahn wants Yahoo to reopen talks with Microsoft, saying the company’s board had acted “irrationally” when it rejected Microsoft’s US$47.5 billion buyout offer.
Icahn said in an open letter that Yahoo “completely botched” merger talks with Microsoft and that he is amassing Yahoo stock to oust the board of directors at an annual shareholders meeting on July 3.
Microsoft walked away from the deal earlier this month when Yahoo rejected its final offer of US$33 a share, holding out for at least US$37 a share.
“With Yahoo being pushed by shareholders to get back to the table, you would think it’s just what Microsoft wanted,” said Marc Weingarten, an attorney with Schulte Roth & Zabel.
For its part, Microsoft has declined to comment on Icahn’s actions. A company spokesman repeated the same message that its executives have said over the last two weeks: it had moved on.
Still, Icahn has opened the door for Microsoft to swoop in as white knight and buy Yahoo in a friendly deal without instigating the proxy battle it had threatened.
“Microsoft can come directly back to the Yahoo board and save them from the proxy contest, save them from all the criticism that they are getting,” Weingarten said.
Microsoft’s motivation for buying Yahoo — to create an online advertising powerhouse to rival Google Inc — remains intact.
Mergers and acquisitions (M&A) experts said it would be wise for Microsoft to lie low and see if pressure from Icahn and other activist investors will prompt Yahoo’s board to turn to Microsoft with hat in hand.
“The whole strategy for Microsoft, in an M&A sense, was to say ‘fine, we take our bat and ball and go home.’ You don’t want to say that and then be seen popping out of the house and looking down the block for your former playmates,” said Marshall Sonenshine, Chairman of New York-based investment bank Sonenshine Partners.
“If they have any intention of coming back, they shouldn’t say anything. If they don’t have any intention, then they have nothing to say,” said Sonenshine, who sees the deal getting done at a price slightly above US$33 a share.
Sonenshine said an eventual Microsoft-Yahoo deal may play out like News Corp’s acquisition of Dow Jones.
The Bancroft family, which controlled Dow Jones, balked at News Corp’s US$5.6 billion bid, but the 65 percent premium proved too attractive for many family members to resist, especially after it eliminated the possibility of competing bids.
Similarly, shareholders may push Yahoo to accept Microsoft’s US$33-a-share bid, a 72 percent premium on Yahoo’s share price before Microsoft went public with its hostile bid on Feb. 1, especially if no other viable offers emerge.
Shares of Yahoo fell below US$23 after Microsoft pulled its offer. Yahoo’s two largest shareholders, Capital Research Management and Legg Mason, have signaled displeasure with how it handled negotiations with Microsoft.
In a response to Icahn, Yahoo chairman Roy Bostock defended the board’s actions and said it continues to “actively and expeditiously explore strategic alternatives.”
“Unfortunately, your letter reflects a significant misunderstanding of the facts about the Microsoft proposal and the diligence with which our board evaluated and responded to that proposal,” Bostock wrote in an open response to Icahn.
“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,” he wrote.
Icahn said he has acquired 59 million shares of Yahoo — around 4 percent of its capital — and had formed a 10-person slate to run against the current board.
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