Icahn, Yahoo Still Sparring over Microsoft Buyout

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Billionaire investor Carl Icahn is still working to railroad a deal where Microsoft buys out Yahoo, and his latest written volleys show that he doesnit trust Yahoois board of directors and is certain that they are working to sabotage any chance of a deal. Yahoo has countered that Mr. Icahn must have spent his formative years sniffing glue -- figuratively speaking -- and needs to get his facts straight.

In a letter to Yahoo Chairman Roy Bostock, Mr. Icahn accused the company of creating a "poison pill" plan to entice employees to leave the company should Microsoft successfully leverage a buyout. "According to details in a complaint that I became aware of yesterday (details Yahoo fought to keep under seal), Jerry Yang and a majority of the board went to inordinate lengths to sabotage a Microsoft bid," he said.

According to Mr. Icahn, the plan "gives each of Yahoois 14,000 full-time employees the right to quit his or her job and pocket generous termination benefits at any time during the two years following a takeover," if they claim that their highly detailed job descriptions or duties change during the two years following a buyout.

Mr. Bostock fired back telling Mr. Icahn that he was misrepresenting and manipulating the facts to his own end. "You make reference to our employee retention plan but you significantly mischaracterize its purpose and its effect," Mr. Bostock said. "In fact, you refer to it as a iPoison Pilli which could not be further from the truth."

He added "For an employee to be eligible for benefits under our plan, there would need to be a change of control AND the employee would need to be terminated iWithout Causei or resign for iGood Reason.i That means that in contrast to your assertions, an employee who simply quits his or her job would receive nothing under our plan."

Mr. Icahn is certain that Yahoois current board is mismanaging the Internet search company, and is having a detrimental effect on the companyis value. His solution: Replace the board and sell Yahoo to Microsoft.

Mr. Icahn has assembled a proxy board he hopes to put in place at Yahoois next shareholder meeting. If successful, he hopes to entice Microsoft back to the negotiating table. Microsoft previously walked away from its Yahoo buyout offer after deciding a deal didnit make fiscal sense.

While Mr. Icahn seems intent on pushing both Microsoft and Yahoo back into negotiations, there isnit any outward indication that either company is interested in signing a deal right now.

"This is puzzling as I know you are aware that we have reached out to Microsoft proactively and met with them many times in the last several weeks," Mr. Bostock said. "During this period, their message to us and to the markets has been and remains that they are not interested in pursuing a full acquisition of Yahoo."

The schoolyard bickering didnit subside after the letters from both sides earlier this week. Now Mr. Icahn is accusing Mr. Bostock of misrepresenting the facts and is insisting that the "poison pill" severance packages for employees be dropped.

Mr. Icahn has also outlined his plans should his proxy board take control of Yahoo: The new board would drop the employee severance package, sever alternative transaction talks with other companies, and publicly ask Microsoft to buy the company. Should Microsoft fail to go for the bait, he would then try to strike a search deal with Google that includes a back-out option if Microsoft later decides it wants to buy Yahoo.

In other words, Mr. Icahn is set on selling Yahoo to Microsoft, one way or another.

Apparently Yahoois board of directors isnit comfortable moving forward with a Microsoft buyout as the only option on the table. "Leaving aside Mr. Icahnis inaccurate interpretation of our retention plan, we again note that he has no credible plan to operate Yahoo," Mr. Bostock said.

Both Mr. Icahn and Yahoois board of directors think they have the best plan for keeping the company healthy and competitive in the cut throat Internet search advertising market. Considering the amount of money that is at stake, neither side can afford to be wrong in this game.

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