Yahoo and Icahn find compromise

The Baltimore Sun

Yahoo Inc. and Carl C. Icahn announced yesterday that they had settled their dispute over the makeup of the company's board, striking a compromise that will give the dissident investor and his allies three of the board's 11 seats.

The move ends a showdown that had been set for Yahoo's annual meeting Aug. 1, when shareholders would have voted on a rival slate of board members proposed by Icahn. He had vowed to pursue a sale of Yahoo to Microsoft Corp. Under the agreement, Yahoo co-founder Jerry Yang will remain chief executive and Roy Bostock will remain board chairman.

"This agreement will not only allow Yahoo to put the distraction of the proxy contest behind us, it will allow the company to continue pursuing its strategy of being the starting point for Internet users and a must-buy for advertisers," Yang said.

Icahn also praised the compromise, which will put him on an expanded 11-member board, along with two others from a pool of nine that he will recommend. In a written statement released by Yahoo, Icahn said:

"I am very pleased that this settlement will allow me to work in partnership with Yahoo's board and management team to help the company achieve its full potential. While I continue to believe that the sale of the whole company or the sale of its search business in the right transaction must be given full consideration, I share the view that Yahoo's valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders."

Yahoo shares fell 78 cents to $21.67 yesterday - well below the $33 a share that Microsoft Chief Executive Officer Steven A. Ballmer dangled in early May before withdrawing the bid after Yang sought $37 per share.

Robert Kotick, chief executive of video-game publisher Activision Blizzard, will step down from the board, Yahoo said. The other directors will keep their jobs, including Bostock, Yang, Ronald Burkle, Eric Hippeau, Vyomesh Joshi, Arthur Kern, Mary Agnes Wilderotter and Gary Wilson.

Some shareholders want even more new faces on Yahoo's board after watching the company's market value plummet by more than 40 percent, or about $20 billion, since the end of 2005. All but one of Yahoo's directors - Wilderotter - have been on the board since 2005.

"I am still very angry at this board, and I am sure other shareholders feel the same way," said Eric Jackson, who manages a hedge fund, Ironfire Capital, that's organizing a protest on behalf of about 150 Yahoo stockholders with about 3.2 million combined shares.

Jackson said his group plans to oppose re-election of four Yahoo incumbents - Bostock, Burkle, Hippeau and Kern. More than 30 percent of Yahoo's shareholders voted against Bostock, Burkle and Kern at last year's annual meeting, with Jackson leading the fight.

The compromise ends the board dispute, but it does not resolve the broader issue of whether Yahoo will negotiate a sale to Microsoft.

Scott Kessler and Jim Yin, information technology analysts with Standard & Poor's Equity Research, said in separate notes to investors that they believe a deal for Microsoft to buy Yahoo's search business or the entire company is "less likely" after the compromise.

Kessler said yesterday's announcement came amid evidence that Yahoo's board was gaining momentum and Icahn losing it as the dispute headed for the annual meeting. On Friday, Legg Mason's Bill Miller, who controls 4.4 percent of Yahoo's stock, became the first major institutional investor to say he would vote to keep the current board in place.

Jim Puzzanghera writes for the Los Angeles Times. The Associated Press contributed to this article.

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