Icahn tells Yahoo board to scrap severance plan
By MICHAEL LIEDTKE, AP Business Writer 5 minutes ago
SAN FRANCISCO - Dissident investor Carl Icahn escalated his attacks on Yahoo Inc.'s beleaguered board Wednesday in an acerbic letter demanding the directors scrap an employee severance plan that drove up the potential costs of a Microsoft Corp. takeover.
If Yahoo's board clings to the severance plan, Icahn indicated he will follow through on his 3-week-old threat to ask shareholders to fire the board at the Sunnyvale-based company's Aug. 1 annual meeting.
That move would also target Yahoo Chief Executive Jerry Yang, who co-founded the Internet pioneer 14 years ago and pushed for the adoption of the severance program. The plan could trigger $464 million to $2.4 billion in employee payments if Microsoft pulled off a successful takeover at a price ranging from $31 to $35 per share.
Those estimates were drawn from internal Yahoo records unsealed Monday in a shareholder lawsuit alleging Yang and the company's board improperly spurned Microsoft ever since the software maker made its first overtures in August 2006.
Microsoft CEO Steve Ballmer withdrew an oral offer to buy Yahoo for $47.5 billion, or $33 per share, a month ago after Yang asked for $37 per share — a price that the company's stock hasn't reached since early 2006.
"One doesn't have to be a rocket scientist to realize there is a simple method" for luring another offer from Microsoft, Icahn wrote in the letter, which was addressed to Yahoo Chairman Roy Bostock. "Simply rescind the ... 'severance plan,' which would free up approximately $2.4 billion and possibly even more, which could be added to the bid."
At $2.4 billion, the severance plan would translate into slightly more than $1.50 per Yahoo share that theoretically could be tacked on to Ballmer's last offer.
Many industry analysts still believe Microsoft will make another bid for Yahoo and eventually reach a deal for $34 to $35 per share. Yahoo shares closed Wednesday at $26.85, up 70 cents.
If it remains in place, the severance plan could cause Icahn headaches in a successful shareholder revolt. If at least half of Icahn's 10 candidates were elected, that would constitute a "change in control" that would qualify Yahoo's work force for severance payments in any possible reorganization.
Yahoo had no immediate comment on Icahn's letter, but the board has repeatedly said it remains open to selling to Microsoft at a price that recognizes the company's progress toward building a more profitable online advertising network.
Yang has promised that his company's net revenue will increase by at least 25 percent in 2009 and 2010, a dramatic rise from the recent growth rate of about 12 percent.
Icahn, a billionaire with a long history of provoking corporate shake-ups, is trying to drum up support among shareholders tired of waiting for Yahoo to recover from a financial malaise that has been magnified by the rise of online search and advertising leader Google Inc.
Once the smaller of the two companies, Google now makes more money in two months than Yahoo does in a year.
By buying Yahoo, Microsoft would obtain a potent weapon to thwart Google's growth, and that's the main reason analysts believe the software maker will renew its takeover attempts.
Although it hasn't ruled out the possibility of reviving its bid, Microsoft in recent weeks has been exploring a deal focused on Yahoo's search operation. Yahoo President Susan Decker told an advertising conference Wednesday that the two sides remain in "ongoing, engaged" discussions, though she didn't provide details.
Icahn's letter indicated he would be unhappy with anything that falls short of selling Yahoo in its entirety. "I and many of your shareholders believe that the only way to salvage Yahoo in the long if not short run is to merge with Microsoft," he wrote.
Microsoft representatives didn't immediately respond to requests for comment Wednesday.
Hoping Microsoft will bid again for Yahoo, Icahn has spent more than a $1 billion to acquire a 4.3 percent stake in Yahoo.
Icahn picked up more artillery for his campaign against Yang and the other Yahoo directors Monday when a Delaware court unsealed documents in a shareholder lawsuit over how the company handled the Microsoft bid.
The records revealed that Yang brushed aside the concerns of Yahoo's outside consultants to push for generous benefits covering all 13,800 of the company's employees if they are laid off or reassigned within two years of a takeover.
Yang sought protection for all Yahoo employees even though Ballmer had assured him Microsoft would set aside $1.5 billion to retain employees after a takeover, according to handwritten notes of a phone conversation between the two executives.
The plan, adopted 12 days after Microsoft made its initial bid Jan. 31 this year, guaranteed cash and stock payments to any employee who is fired or reassigned to a new job within two years of a Microsoft takeover.
At Microsoft's initial bid of $31 per share, the severance plan would have imposed an additional $462 million to $2.1 billion in costs. At $35 per share, the additional severance expenses would range from $514 million to $2.4 billion, according to Yahoo's documents.
Similar severance plans have been adopted by many other companies trying to ward off unwelcome advances, said Dennis Carey, senior client partner for Korn/Ferry International, which helps companies find CEO and board candidates.
"These are legally accepted practices with plenty of historical precedent," Carey said.
Yahoo has said it was acting in shareholders' best interests by creating a program that allowed its employees to focus on their jobs instead of worrying what would happen to them in a takeover.
But Icahn derided the severance plan as a deliberate attempt to sabotage the Microsoft bid.
"Until now I naively believed that self-destructive doomsday machines were fictional devices found only in James Bond movies," Icahn wrote. "I never believed that anyone would actually create and activate one in real life."
